REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2006

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from
to

¨

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1937

Commission file number: 1-32139

Air France-KLM

(Exact name of registrant as specified in its charter)

Not applicable

2, rue Robert Esnault-Pelterie 75007 Paris

France

France

(Translation of registrants name into English)

(Address of principal executive offices)

(Jurisdiction of incorporation or organization)

Securities registered or to be registered pursuant
to Section 12(b) of the Act

Title of each class

Name of each exchange on which registered

Ordinary shares, nominal value 8.50 per share*

American Depositary Shares, each representing

one ordinary share

Warrants to purchase ordinary shares**

American
Depositary Warrants, each representing

one warrant to purchase ordinary shares

New York Stock Exchange*

New York Stock Exchange

New York Stock Exchange**

New York Stock Exchange

*

Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

**

Not for trading, but only in connection with the registration of the American Depositary Warrants pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered
pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period covered by the Annual Report:

Ordinary shares, nominal value 8.50 269,383,518

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No þ

Note  checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 from their obligations under those sections.

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ

Accelerated filer ¨

Non-accelerated filer ¨

Indicate by check mark
which financial statement item the registrant has elected to follow:

Item 17 ¨ Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

On May 3, 2004, Air France combined with KLM Royal Dutch Airlines. The financial condition and results of operations of
KLM are included in those of Air France-KLM from May 1, 2004. On September 15, 2004, Air France transferred its assets, liabilities, businesses and operations to a French wholly-owned subsidiary in the hive down and was renamed
Air France-KLM. In addition, the French wholly-owned subsidiary of Air France-KLM was renamed société Air France on such date. See Item 4: Information on the CompanyHistory of Air France-KLMThe Hive Down.
Accordingly, prior to March 31, 2004, we have given information in this annual report for Air France only. Investors are advised that any information regarding Air France given in this annual report is neither comparable to nor representative
of the operations and results of operations and financial condition of Air France-KLM.

In this annual report, unless the context otherwise requires:



Air France-KLM, we, us and our mean Air France and KLM after completion of the exchange offer but before the hive down, and Air
France-KLM and the combined operating companies after the hive down.



Air France refers to société Air France or Air France Group and its consolidated subsidiaries, as the context requires, either before or after the hive
down, as the context requires.



KLM refers to KLM Royal Dutch Airlines or the KLM group, as the context requires.



the combination refers to the combination of the business and operations of Air France and KLM, the principal terms of which were set forth in the framework agreement.



the exchange offer refers to the offer launched on April 5, 2004 and completed on May 3, 2004 by Air France to acquire all of the outstanding common shares of
KLM in exchange for Air France shares and Air France warrants, including Air France shares in the form of American Depositary Shares (ADSs) and Air France warrants in the form of American Depositary Warrants (ADWs).



the framework agreement refers to the framework agreement, including its schedules, entered into by Air France and KLM on October 16, 2003 setting forth the
principal terms of the combination and the exchange offer, including the new corporate governance arrangements for Air France-KLM.



the hive down refers to the transfer, as approved on September 15, 2004, by Air France of its assets, liabilities, businesses and operations to Air France Compagnie
Aérienne (which was renamed société Air France on such date).



the privatization refers to the effective transfer of a majority of Air Frances share capital on May 6, 2004 to the private sector upon the dilution of the
French States shareholding upon the creation of 45,938,857 new Air France shares and 41,762,597 new Air France warrants to compensate the tender of KLM common shares in the exchange offer.



United States or U.S. refers to the United States of America, France refers to the Republic of France and the Netherlands refers to
the Kingdom of the Netherlands.

Unless otherwise
indicated, statements in this annual report relating to market share, ranking and data are derived from management estimates based, in part, on independent industry publications, reports by market research firms or other published independent
sources.

In this annual report, references to euro or  are to the unified currency
that was introduced in connection with the European Economic and Monetary Union in the participating member states of the European Union on January 1, 1999. References to USD, dollars or $ are to the currency
of the United States of America.

For your convenience, this
annual report contains translations of euro amounts into dollars at specified exchange rates. These translations have been made at the indicated noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the
Federal Reserve Bank of New York. These translations are not representations that the euro amounts actually represent these dollar amounts or could be converted to dollars at the rates indicated.

For your convenience, we have rounded some financial data. As a result, the
totals of the data presented may vary slightly from the actual arithmetic totals of that data.

Cautionary Statement Concerning Forward-Looking Statements

This annual report contains or incorporates by reference forward-looking statements regarding the intent, belief or current expectations of
Air France-KLM and its respective directors and officers about Air France-KLM and its businesses. Generally, words such as may, expect, intend, estimate, anticipate,
believe, plan, seek, continue or similar expressions identify forward-looking statements.

We caution that these statements are further qualified by the risk factors disclosed in this annual report that could cause actual results to differ
materially from those in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. See Item 3: Key
InformationRisk Factors.

These forward-looking
statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside our control and are difficult to predict,
that may cause actual results or developments to differ materially from any future results or developments expressed or implied from the forward-looking statements. Factors that could cause actual results to differ materially from those contemplated
by the forward-looking statements include, among other factors:



our ability to develop an integrated strategy for Air France-KLM,



the future level of air travel demand,



competitive pressure among companies in our industry,



changes in the cost of fuel or the exchange rate of the euro to the dollar and other currencies,



actions or decisions by courts and regulators or changes in applicable laws or regulations (or their interpretations), including the laws and regulations governing the structure of
the combination, the right to service current and future markets and laws and regulations pertaining to the formation and operation of airline alliances,



our future load factors and yields,



the effects of terrorist attacks, the possibility or fear of such attacks and the threat or outbreak of epidemics, hostilities or war, including the adverse impact on general
economic conditions, demand for travel, the costs of security, the cost and availability of aviation insurance coverage and war risk coverage and the price of jet fuel,

We also caution that the information given in this annual report with respect to Air France only, is neither comparable to nor representative of the
operations and results of operations and financial condition of Air France-KLM.

The first table below sets forth the selected
consolidated financial data of Air France-KLM as of and for each of the financial years in the two year period ended March 31, 2006 prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European
Commission for use in the European Union (IFRS as adopted by the E.U.). The second table below sets forth the selected consolidated financial data of Air France-KLM as of and for each of the financial years in the two year period ended
March 31, 2006 and of Air France as of and for each of the financial years in the three year period ended March 31, 2004 prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The financial
condition and results of operations of KLM are included in those of Air France-KLM from May 1, 2004. The selected consolidated financial data have been derived from the audited consolidated financial statements of Air France-KLM or Air France,
as the case may be. Air France-KLMs consolidated financial statements as of and for the years ended March 31, 2005 and 2006 have been audited by Deloitte & Associés (formerly Deloitte Touche Tohmatsu) and KPMG S.A. its
statutory auditors, as indicated in their report appearing elsewhere in this annual report. Air Frances consolidated financial statements as of and for the years ended March 31, 2003 and 2004 have been audited by Deloitte &
Associés (formerly Deloitte Touche Tohmatsu) and KPMG S.A. Air Frances consolidated financial statements as of and for the year ended March 31, 2002 have been audited by Deloitte & Associés (formerly Deloitte Touche
Tohmatsu).

Pursuant to the transposition in France of European
Regulation 1606/2002 of July 19, 2002, we adopted IFRS as adopted by the E.U. for the first time in our consolidated financial statements for the year ended March 31, 2006, which includes comparative financial statements for the year ended
March 31, 2005. IFRS 1 First-time adoption of International Reporting Standards requires that an entity develop accounting policies based on the standards and related interpretations effective at the reporting date of its first
annual IRFS consolidated financial statements (i.e., March 31, 2006). IFRS 1 also requires that those policies be applied as of the date of transition to IFRS (i.e., for Air France-KLM, April 1, 2004) and throughout all periods presented
in the first IFRS financial statements. The accompanying financial information as of and for the years ended March 31, 2006 and 2005 have been prepared in accordance with IFRS as adopted by E.U. as of May 17, 2006, the date on which Air
France-KLMs financial statements have been approved by the Board of Directors.

IFRS as adopted by the E.U. differs in certain respects from IFRS as published by the International Accounting Standards Board (IASB). We have, however, determined that the financial information for each
of the financial years in the two year period ended March 31, 2006 would not be different had the Company applied IFRS as published by the IASB.

IFRS differs in important respects from U.S. GAAP. For a discussion of the principal differences between IFRS and U.S. GAAP relevant to the consolidated
financial statements, together with a reconciliation of net income and shareholders equity under IFRS to net income and shareholders equity under U.S. GAAP, see Note 41 to the consolidated financial statements.

Air France-KLMs results of operations are not directly comparable to
those of Air France because of the completion of the exchange offer.

You should read the following selected consolidated financial data together with the consolidated
financial statements and Item 5: Operating and Financial Review and Prospects included elsewhere in this annual report.

Year ended March 31,

2006

2005(1)

(in millions, except shares and pershare data)

($)(2)

()

()

Amounts in accordance with IFRS:

Stockholders equity

9,533

7,853

6,020

Total assets

32,143

26,479

23,194

Long-term debt

9,500

7,826

7,889

Common stock

2,780

2,290

2,290

Revenues

26,041

21,452

18,983

Net income from continuing operations

1,118

921

1,637

Net income

1,108

913

1,710

Earnings per share(3)

Basic

4.21

3.47

6.61

Diluted

3.95

3.25

6.60

Income from continuing operations per share

Basic

4.25

3.50

6.33

Diluted

3.98

3.28

6.32

Dividend declared per share (in )



0.30

0.15

Dividend declared per share (in dollars)(2)

0.36



0.19

Average number of shares outstanding (in thousands) (3)

Basic

263,424

263,424

258,705

Diluted

284,227

284,227

258,895

Note:

(1)

Including results of operations of KLM from May 1, 2004.

(2)

Translated solely for convenience at the noon buying rate on March 31, 2006 of $1.2139 per 1.00.

Translated solely for convenience at the noon buying rate on March 31, 2006 of $1.2139 per 1.00.

(3)

Excluding shares held by Air France-KLM.

Exchange Rate Information

The following tables set forth, for the periods indicated, information concerning the noon buying rate expressed in dollars per euro. Such rates are
provided solely for your convenience. No representation is made that the euro could have been, or could be, converted into dollars at the rates indicated below:

Year ended March 31,

Average(1)

High

Low

Period-endrate

2002

0.879708

0.9310

0.8370

0.8717

2003

1.003283

1.1062

0.8750

1.0900

2004

1.180396

1.2845

1.0628

1.2289

2005

1.2653

1.3625

1.1801

1.2969

2006

1.2163

1.3093

1.1667

1.2139

Note:

(1)

The average of the noon buying rates on the last day of each month during the period.

Fluctuations in the dollar/euro exchange rate will affect the dollar equivalent of the euro price of our shares and warrants on Euronext Paris and Euronext Amsterdam. As a result, the dollar/euro exchange rate is likely to affect the market
price of our ADSs and ADWs in the United States. These fluctuations will also affect the dollar amounts received by holders of our ADSs on conversion by the ADS depositary of any cash dividends paid in euro on our shares.

In addition to the other information included in this annual report, the considerations listed below could have a material adverse effect on our
business, financial condition or results of operations, resulting in a decline in the trading price of our ordinary shares, warrants, ADSs or ADWs. The risks set forth below comprise all material risks currently known to us. However, there may be
additional risks that we do not currently know of or that we currently deem immaterial based on the information available to us. These factors should be considered carefully, together with the information and financial data set forth in this
document.

Risks Related to the Airline Industry

Future terrorist attacks, the threat of attacks or regional instability,
medical epidemics or threats or fears of epidemics may worsen conditions in the airline industry.

The terrorist attacks in the United States on September 11, 2001 had a significant negative effect on the global economy, political stability and
market conditions around the world. Airlines, in particular, experienced significant revenue losses and incurred substantial additional costs, principally as a result of a decrease in demand for air travel, significantly higher costs of insurance
and passenger and aircraft security, and decreases in the resale prices of some types of aircraft. Regional instability following hostilities in Iraq has also had a material adverse effect on the airline industry. Any future terrorist attack,
military action, or the threat of attacks or action, in the Middle East or elsewhere, could result in a general reduction in airline passenger traffic and prices for airline travel, newly imposed air traffic restrictions in affected regions and an
increase in fuel or insurance costs, all of which could have a material adverse effect on our business. Additionally, passenger volumes may significantly decrease in the event of a medical epidemic or threat or fear of an epidemic. For example, the
outbreak of SARS in 2003 resulted in a sharp reduction in air traffic and revenue related to Asia. The prolonged existence of a medical epidemic, or the perception that an outbreak has not been contained or may occur again in the future, may have a
material adverse effect on the demand for our air services to or from affected countries.

Insurance costs increased significantly after September 11, 2001, and may increase in the future, and the amount of available insurance coverage may be further limited as the result of similar events.

Following the terrorist attacks on September 11,
2001, insurance premiums for airlines increased significantly, especially for risks relating to terrorism. In the event of further terrorist attacks or acts of war, insurance premiums may be increased further or insurance may be made available only
with additional limitations on coverage. Any failure to obtain adequate insurance coverage or insurance coverage at financially acceptable terms in the future would materially adversely affect our business, financial condition and results of
operations.

Government support of airlines may have a
distorting effect on competition in the airline industry.

Following the events of September 11, 2001, a number of countries took measures to help airlines extend coverage for damage caused to third parties on the ground as a result of terrorist acts, since the coverage available in the
insurance market was limited. The French State and the Netherlands offered airlines, for a charge, an extension of coverage for loss amounts that exceeded the insurance coverage available in the market. From November 1, 2002, France and the
Netherlands phased out this additional coverage at the direction of the European Commission, and European airline companies were required to obtain insurance coverage from private insurance companies. The United States, however, passed legislation
permitting federal authorities to maintain government guarantees in favor of U.S. airline companies covering damage caused to third parties on the ground, passengers, crew and aircraft, at cost levels substantially below those borne by European
airlines. In addition, in February 2005, the U.S. government took over US Airways pensions for machinists and attendants in exchange for a financial stake in US Airways. Further, in May 2005, the U.S. government agreed to take over United

Airlines pensions in exchange for a financial stake in its parent company, UAL Corp. Added to the substantial subsidies received from U.S. federal
authorities and the costs of new security measures assumed by the U.S. federal authorities following the events of September 11, 2001, the reduced insurance costs paid by U.S. airlines have offered, and continue to offer, U.S. airlines a
significant competitive advantage over their European competitors, particularly on routes over the North Atlantic. In addition, four of the major U.S. airlines have filed for bankruptcy support under Chapter 11 of the US Bankruptcy Code. Similar
protections offered by governmental authorities in the future may have a material adverse effect on our business.

High fixed costs and low profit margins may limit profitability in the airline industry.

The airline industry is characterized by low gross profit margins and high
fixed costs. The expenses of each flight do not vary significantly with the number of passengers or amount of cargo carried and, therefore, a relatively small change in the number of passengers or in the pricing or traffic mix could have a
significant effect on operating and financial results. Accordingly, a minor shortfall from expected business levels could have a material adverse effect on our financial performance.

The airline industry is by nature cyclical and seasonal, which may cause our results to vary widely.

Our businesses are highly sensitive to local, regional and international
economic conditions. Our business, financial condition and results of operations are subject to changing economic and political conditions prevailing from time to time in the principal markets throughout the world. Because both business and leisure
airline travel is discretionary, our business tends to experience severe adverse financial results during general economic downturns. In addition, during an economic downturn, we may also be required to accept delivery of new aircraft that we have
agreed to purchase even if the new aircraft are not required for our current operations, or may be unable to dispose of unnecessary aircraft on financially acceptable terms.

The airline industry tends to be seasonal in nature. The demand for scheduled airline services is lowest during the winter
months, which generally results in seasonal fluctuations in revenues and results of operations. Our results of operations for the interim periods of any financial year may not be indicative of our results of operations for the full year.

Changes in international, regional and local regulation and legislation
could significantly increase our costs of operations or reduce our revenues.

Our operations are subject to a high degree of international, European and national regulation covering most aspects of its operation, including traffic rights, fare setting, operating standards (the most important of
which relate to safety, security and aircraft noise), airport access and slot availability.

Additional laws and regulations and additional or increased taxes, airport and navigation rates and charges have been proposed from time to time that could significantly increase our cost of operations or reduce our
revenues. The ability of European carriers to operate international routes is subject to change because the applicable arrangements between European and foreign governments may be amended from time to time, or because appropriate slots are not
available. Laws or regulations enacted in the future may adversely affect our business.

Risks Related to the Business

The
integration of Air France and KLM may be difficult and may not result in the benefits that we currently expect.

The development of Air France-KLM requires the integration of two major and complex activities that were run separately until March 31, 2004. Air
France-KLM may encounter difficulties with the integration of the activities of Air France and KLM and may not be able to achieve all of the objectives of and the synergies expected to result from the combination.

Regulatory authorities have imposed conditions and may impose additional conditions that could reduce
the expected benefits of the combination.

Air France and
KLM, in order to secure the approval of the combination by the European Commission on February 11, 2004, agreed to make a number of concessions in respect of the operations of Air France-KLM, including a commitment to release take-off and
landing slots to competitors at certain airports. We do not believe that compliance with these undertakings has had or will have a material adverse effect on our operations.

Substantial competition from other major airlines, high-speed rail travel and low-cost airlines may harm our
business.

The airline industry is highly competitive and
prone to price discounting. The air travel market in the European Union has been fully liberalized and any European airline is able to compete with Air France and KLM in their domestic and European markets. Liberalization of the European market and
the resulting competition among carriers has led to a general decrease of airfares and an increase in the number of competitors in many lines of business. We currently face substantial competition from other carriers. This competition is likely to
increase further.

With respect to short-haul and medium-haul
flights in or from France, the Netherlands and other European countries, we currently face competition from providers of alternative forms of transportation. In particular, we compete directly with the French high-speed train system (the TGV) on
transportation to major French cities, which are the targeted market for Air Frances La Navette shuttle services. The Eurostar train service to London competes directly with Air Frances flights to London. An expansion of the TGV
system within France or high-speed rail service within Europe generally could have a significant adverse effect on our business, financial condition and results of operations.

In addition, we face increasing competition from low-cost airlines that have become significant competitors in the European
airline industry in recent years. The percentage of routes on which we compete with carriers having substantially lower operating costs has grown significantly over the past decade. Such competition is likely to continue at this level or intensify
in the future. Moreover, the increase in pricing transparency resulting from the use of the Internet has enabled consumers to more easily obtain the lowest fare on any given route. Continued or increased competition from other carriers, including
low-cost airlines, could have a material adverse effect on our business, financial condition, and results of operations.

We may be adversely affected by high jet fuel prices.

After labor costs, fuel costs constitute the single largest portion of our operating costs and have a major impact on our results of operations. For the
year ended March 31, 2006, fuel costs represented 17.5% of our operating expenses, an increase of 3.2 percentage points from the prior year. The price of jet fuel is usually correlated to the price of petroleum. The average price of Brent IPE
petroleum for the financial year ended March 31, 2006 was $58.8 per barrel and between January and March 2006 was $62.7 per barrel, and between April and June 2006 was $67.0 per barrel. The price of Brent IPE petroleum on July 18, 2006
was U.S.$76.33 per barrel. The average price of jet fuel for the financial year ended March 31, 2006 was $598.0 per ton and between January and March 2006 was $613.9 per ton. These rates are very high by historical standards. Jet fuel
costs may be affected by a number of factors, including fluctuations in the euro/dollar exchange rate, political events, war or the threat of war, and the coordinated pricing decisions of producer cartels such as OPEC. We seek to reduce this risk by
hedging against the price of petroleum. We have additionally introduced a fuel surcharge per flight leg as from May 2004 which as of the date of this annual report reached 16 on medium-haul flights and 40 on long-haul flights for Air
France and 22 on medium-haul flights and 52 on long-haul flights for KLM. We have also introduced a fuel surcharge on cargo operations. Notwithstanding the application of hedging policies, the introduction of a fuel surcharge and
possible adjustments in fares across the industry during periods of sustained high fuel prices, high jet fuel costs have had a material adverse effect on our business, financial condition and

results of operations in the past, and may have such an effect on us in the future. In addition, while we purchase our fuel in dollars, our reporting
currency is the euro. Adverse fluctuations in foreign exchange rates may further exacerbate the effects of high fuel prices.

Given the international nature of our business, we receive a large part of
our revenues and incur an even larger part of our expenses in certain foreign currencies, particularly dollars, and will be exposed to fluctuations in the exchange rates between those currencies and the euro. Our dollar revenues are less than our
dollar costs, such as fuel costs and payments under aircraft operating leases. As a result, the sharp decline of the dollar against the euro has had a positive impact on our profitability by decreasing our costs more rapidly than its revenues.
However, if the dollar were to increase in value against the euro, our costs would rise more rapidly than revenues, negatively affecting profitability. We estimate that Air France-KLMs net exposure to the dollar (dollar costs minus dollar
revenues) for the current financial year is approximately $2.4 billion. We seek to reduce this risk by hedging against currency fluctuations. See Item 11: Quantitative and Qualitative Disclosures About Market Risk  Exchange Rate
Risk. With respect to the British pound and Japanese yen, we currently have more revenues than costs in those currencies, so that a decrease in their value would have a negative effect on our profitability. As a result, significant increases
in the value of the dollar or, to a lesser extent, decreases in the value of the pound or yen, could have a material adverse effect on our business, financial condition and results of operations, despite our efforts to hedge against these
fluctuations.

We are also exposed to increases in interest
rates. Most of Air France-KLMs net debt had variable rates of interest. We seek to reduce this risk by entering into swap arrangements. A significant rise in interest rates could substantially increase the cost of this debt, reducing our net
income. See Item 11: Quantitative and Qualitative Disclosures About Market Risk  Interest Rate Risk.

The failure of an alliance to develop or the decision by other members not to participate fully or to withdraw from an alliance could have a material
adverse effect on our business.

Maintenance and
development of alliances and other strategic relations are critical to our business. Air France and KLM are members of the SkyTeam alliance with Aeroflot (since April 2006), Aeroméxico, Alitalia, Continental Airlines, CSA Czech Airlines,
Delta Air Lines, Korean Air and Northwest Airlines. We also have a joint venture with Alitalia. The success of these alliances depends in part on the actions and strategic plans of the other airlines over which we have little control. The failure of
an alliance to develop or the decision by other members not to participate fully or to withdraw from the alliance altogether could have a material adverse effect on our business.

In addition, we believe that further industry consolidation is likely, whether through additional alliances or otherwise. A
failure to maintain or develop strategic alliances could adversely affect our business, financial condition and results of operations.

Our development of new routes depends on access to a limited number of slots at international airports that may be withdrawn if not
sufficiently used.

Our ability to add additional flights
to the existing schedules of Air France and KLM will be constrained, in part, by the availability of slots at the worlds main airports. In the European Union, air carriers must generally use an allocated slot at a minimum of 80% of the level
of use during the period the slot was assigned. Air France and KLM may lose flight slots granted to them should they not use those slots at an 80% level. In addition, Air France and KLM have committed to the European Commission to make slots
available to competitors on certain routes under certain circumstances.

Compliance with environmental regulations may affect our existing or future operations and result in
additional costs.

The airline industry is subject to
environmental laws and regulations and will be subject to further environmental laws and regulations in the future. These environmental laws and regulations relate to, among other things, aircraft noise and aircraft engine emissions, the use and
handling of hazardous materials, air emissions and environmental contamination clean-up. In recent years, French, Dutch, E.U. and U.S. regulatory authorities have issued a number of directives and other regulations including regulations relating to
aircraft noise and age. These requirements impose high fees, taxes and substantial ongoing compliance costs on airlines, particularly as new aircraft brought into service will have to meet the environmental requirements during their entire service
life. We expect to incur expenditures on an ongoing basis to comply with such regulations. Compliance with these laws could restrict our ability to modify or expand facilities or continue operations, or could require us to install costly pollution
control equipment or incur other significant expenses, including remediation costs. See Item 4: Information on the CompanyRegulation of Air France-KLMOther Regulatory and Legal IssuesEnvironmental Protection and Anti-Noise
Standards.

The assurances to KLM and the State of the
Netherlands could limit our ability to take certain actions.

In connection with the combination, Air France and KLM granted certain assurances to the State of the Netherlands. The assurances granted to the State of the Netherlands have a term of five or eight years from completion of the exchange
offer, depending on the assurance in question. The State assurances are intended to preserve the network quality of KLM at Schiphol airport, which, according to the State of the Netherlands, is a matter of public interest for the Netherlands, and
include certain binding commitments by both Air France and KLM. In addition, Air France and KLM agreed to certain assurances designed to preserve basic principles underlying the business combination. These assurances could limit our ability to
respond to changes in the competitive or economic environments in which we will operate, and could therefore have a material adverse effect on our business and financial condition.

Financing may not be available to us on acceptable terms in the future.

Because the airline industry is by its nature capital intensive, Air France
and, in particular, KLM have incurred significant indebtedness and capital commitments to finance their ongoing operations. Air France and KLM have been able to finance their operations and capital needs in part because their main assets, aircraft,
have been attractive as security to lenders and other financiers. However, there can be no assurance that aircraft or any other assets held by Air France or KLM will continue to provide attractive security for lenders. Any prolonged restriction on
the ability to raise money in the market in the future could adversely affect our ability to borrow, which could in turn have an adverse impact on its business and results of operations.

Unfavorable outcomes of lawsuits may weaken our liquidity position.

We are involved in various legal actions for which we have not recorded
provisions because management believes they are without merit. Unfavorable outcomes of such actions could have a material adverse effect on the results of operations and weaken our liquidity position. See Item 4: Information on the
CompanyBusinessLegal Proceedings.

High
labor costs or an inability to conclude future collective labor agreements on satisfactory terms may result in a decrease in our operating margins.

Wage rates have a significant effect on our operating results. Our profitability could suffer if it is not able to conclude future collective labor
agreements on satisfactory terms with our employees. For the year ended March 31, 2006, labor costs represented 31% of our operating expenses.

Labor disruptions could result in reduced revenues and increased costs.

If we are not able in the future to renew our collective labor agreements or
other key agreements with our employees in a satisfactory way, or if any strike, work stoppage or work slowdown occurs, our business, financial condition and results of operations could be adversely affected.

Disruption of air traffic control and other airport services may have a
material adverse effect on our business.

Our operations
rely upon the services of third parties such as those provided by air traffic controllers and public safety officials, and we use the services of third parties such as handling and private security agents in the ordinary course of its business. We
have no direct control over the activities of these third parties and could be directly affected by any change, interruption or termination of their activities. Any interruption in the normal business activities of these third parties, such as
operational malfunctioning or a series of prolonged strikes, or an increase in airport or rental fees charged in connection with the use of these services, could have a material adverse effect on our business, financial condition and results of
operations.

The closure of terminal 2E at Roissy-CDG may
affect our existing or future operations and result in additional costs.

Air France terminated operations in terminal 2E at Roissy-CDG on May 23, 2004, following the collapse of part of the roof of the newly built terminal. Terminal 2E was constructed and is owned by
Aéroports de Paris (ADP) and was used primarily for Air France long- and medium-haul flights. Air France flights have been rerouted to the five other terminals at Roissy-CDG. Despite the unavailability of the facilities in terminal 2E,
Air France has maintained its schedule as originally planned by relying on the remainder of the airports facilities. Certain Air France-KLM and SkyTeam flights have been reassigned to other terminals and certain long-haul flight times have
been revised to accommodate the longer time required for ground services such as check-in, boarding and connections. In spite of the diminished service offerings available at terminal 2E and the increased costs associated with reassigning flights to
other terminals, we believe these events have had no significant impact on our results of operations.

Although we are currently seeking compensation from the entities or persons liable for damages and the supplemental costs incurred in connection with the
collapse of terminal 2E, there can be no guarantee that all of these costs will be reimbursed. Additionally, there can be no guarantee that Roissy-CDGs remaining facilities will be sufficient to accommodate our regularly scheduled flights or
that we will be able to maintain its flight schedule without incurring additional costs due to the rerouting of passengers or corresponding delays, which could have an adverse affect on our business, results of operations and financial condition.

We have been obliged to adopt new accounting standards that
have materially changed our financial statements and financial reporting.

We currently prepare our consolidated financial statements in accordance with IFRS as adopted by the E.U., pursuant to E.U. regulations that require that all companies whose securities are listed in the European
Union, including Air France-KLM, to apply IFRS in preparing their financial statements for financial years beginning on or after January 1, 2005. We prepare a reconciliation of stockholders equity, net income and certain other disclosures
to U.S. GAAP.

Applying IFRS as adopted by the E.U. to our
financial statements has had an effect on a number of areas, including, among others, accounting for share-based compensation, goodwill and intangible assets, asset depreciation and classification of balance sheet positions as debt or equity.
Principal differences in accounting methods between IFRS and French GAAP relate particularly to the first application of international financial information standards (IFRS 1), deferred taxes (IAS 12), investments in associates (IAS 28),
consolidation and

separate financial statements (IAS 27) and business combinations (IFRS 3). Because our financial statements prepared in accordance with IFRS as adopted by
the E.U. differ from financial statements prepared in accordance with French GAAP, the methods used by the financial community to assess our financial performance and value publicly-traded securities, such as price-to-earnings ratios and
debts-to-equity ratios, could be affected.

Risks Related to our Securities

Substantial sales of our shares or ADSs, or the
issuance by us of equity-linked securities, could cause the price of our shares, ADSs, warrants and ADWs to decline.

The number of our shares available for sale or trading in the public markets has increased or may increase as a result of the exchange offer and the
following other factors:



shares representing 14.1% of the share capital of Air France-KLM held in Air France-KLM savings plans on behalf of employee shareholders became eligible for sale from
May 2004 by those employee shareholders. 15,396,727 of these shares remain eligible for sale;



in May 2004, 45,093,299 subscription warrants for new or existing shares were created to remunerate KLM shareholders, of which 2,682 have been exercised as of March 31, 2006
resulting in the purchase of 1,788 Air France-KLM shares and in 45,090,617 warrants still outstanding; and



on April 19, 2005, Air France completed an offering of 449,999,989.50 principal amount of 2.75% bonds due April 1, 2020 convertible into and exchangeable for new
and/or existing shares of Air France-KLM. A total of 21,951,219 Air France-KLM shares may be issued upon conversion or exchange.

The increase in the number of our shares eligible for sale or trading, or the perception that sales may occur, could adversely affect the market or the
market price of our shares, ADSs, warrants and ADWs. In addition, we may in the future issue equity-linked securities to finance its operations. This could adversely affect the market for, or the market price of, our shares, ADSs, warrants and ADWs.

Fluctuations in the exchange rate between the dollar and
the euro may reduce the dollar market value of our ADSs as well as the dollar value of any dividends that we may pay.

We will pay any cash dividends on our shares in euro, and the ADS depositary will convert such euro amounts into dollars to pay any dividends on the ADSs.
Exchange rate movements will affect the dollar value of these dividends as well as any other dollar distributions paid to you if you hold ADSs. Exchange rate movements will also affect the market value of our ADSs and ADWs.

Our interest in KLM may be diluted.

The State of the Netherlands may exercise an option to acquire the number of
KLM preference shares B necessary to provide the State of the Netherlands with 50.1% of the capital stock and voting rights of KLM, irrespective of the total issued share capital of KLM at any given moment in the event that any key country served by
KLM restricts, terminates or will restrict or terminate KLMs operation of scheduled air services because of that countrys view that:



a substantial part of the share capital of KLM is not demonstrably Dutch-owned, or



KLM is not effectively controlled by Dutch nationals.

If the State of the Netherlands exercises this option, it will have the power, acting alone, to influence matters submitted for a vote of KLM
shareholders. The amended state option has an initial duration of three years from

completion of the exchange offer but may be renewed by the State of the Netherlands up to three times for periods of 12 months each.

The State of the Netherlands agreed to exercise the voting rights attached to
the preference shares B acquired upon any exercise of the amended state option in accordance with the best interests of KLM and the best interests of Air France-KLM and our shareholders. However, any determination made by the State of the
Netherlands as to the best interests of KLM, us and our shareholders might not correspond to our views or the views of our shareholders as to such interests.

In addition, any dispute involving the State of the Netherlands, France and a government of a key country served by KLM under the relevant bilateral
treaty over Dutch ownership or under certain bilateral treaties, effective control of KLM, could divert management attention and have an impact on our business.

Because we are subject to nationality-based ownership and control restrictions, non-European Union nationals, and in some cases, European Union
nationals, may be compelled to sell our shares or ADSs.

To
hold a license and an Air Operator Certificate allowing them to operate scheduled airline services on European routes, European airlines, including Air France and KLM, must at all times be majority owned and effectively controlled by E.U. nationals.
In addition, applicable bilateral air traffic treaties with non-E.U. countries typically require that the air carriers designated by each country to operate the routes covered by the relevant bilateral treaty be substantially- or majority-owned and
effectively controlled by that country or its nationals. Either country that is a party to a bilateral treaty may withdraw or amend the terms and conditions of the operating authorization of an air carrier designated by the other country if the air
carrier does not satisfy these ownership and control requirements.

Our interest in KLM may be diluted as a consequence of the application of these requirements to KLM as explained in this annual report under the heading Risks Related to the BusinessOur interest in KLM may be
diluted. In addition, in order to protect our authority to operate airline services in Europe and under relevant bilateral treaties, our articles of association, and the deposit agreement relating to our ADSs, contain compulsory transfer
provisions whereby non-E.U. and, in certain cases, E.U. nationals, may be forced to sell all or part of their Air France-KLM shares or ADSs if 45% or more of our share capital or voting rights are held, directly or indirectly, by non-French
nationals. See Item 10: Additional InformationForm and Holding of SharesCompulsory Transfer of Shares and Item 10: Additional InformationAmerican Depositary SharesLimitations on the Right to Own, Transfer or
Vote Air France-KLM ADSs; Compulsory Transfer of Air France-KLM Shares.

If you fail to comply with the notification requirements under French law and our articles of association, you could be deprived of some or all of your voting rights and be subject to a fine.

Holders of our shares, including shares represented by ADSs, are subject to
various notification requirements under our articles of association and French law. Under the French Commercial Code, any individual or entity, acting alone or in concert with others that becomes the owner, directly or indirectly, of more than 5%,
10%, 15%, 20%, 33.3%, 50%, 66.6%, 90% or 95% of our outstanding shares or voting rights must notify Air France-KLM and the French Authority for Financial Markets within five trading days of crossing any of these thresholds. This notification
requirement also applies to shareholders when their holding of shares or voting rights falls below any of these thresholds.

If you fail to comply with these notification requirements, your shares, including shares represented by ADSs, in excess of the relevant notification
threshold may be deprived of voting rights for up to two years on the demand of any shareholder or group of shareholders holding a minimum of 5% of our outstanding shares or voting rights. In addition, all or part of your voting rights may be
suspended for up to five years by a French commercial court, at the request of the chairman of our board of directors, any Air France-KLM shareholder or the French Authority for Financial Markets (the AMF), and you may be subject to a
fine of 18,000.

In addition, under our articles of association, any individual or entity, acting alone or in concert with
others that becomes the owner, directly or indirectly, of more than 0.5% of our outstanding shares or voting rights or a multiple thereof up to 50% must notify us within 15 calendar days of crossing the ownership threshold. If you fail to comply
with this notification requirement, your shares, including shares represented by ADSs, may be deprived of voting rights for up to two years on the demand of any one or more shareholders owning, together, at least 0.5% of our share capital.

Holders
of our ADSs may have difficulty exercising some of their rights as shareholders.

The ADS depositary may use discretion to take action or exercise rights on behalf of each ADS holder in a number of circumstances, including the exercise of rights that holders of ADSs may have to subscribe for or
acquire new Air France-KLM shares. In addition, holders of our ADSs will only be able to exercise their voting rights by instructing the ADS depositary to vote on their behalf, and, therefore, the process for exercising voting rights will take
longer for holders of our ADSs than for holders of our shares. For this reason, a deadline will be set by the ADS depositary by which it must receive voting instructions from all our ADS holders. The ADS depositary will not exercise voting rights
with regard to any ADSs for which it does not receive voting instructions by the deadline. See Item 10: Additional InformationAmerican Depositary SharesVoting Rights.

Under French law, holders of our securities have limited rights to call
shareholders meetings or to submit shareholder proposals, which could adversely affect their ability to participate in our governance.

In general, under French law, only our board of directors may call a meeting of shareholders. In limited circumstances, a shareholders meeting may
be called by an attorney appointed by a court at the request of the holders of 5% or more of Air France-KLMs capital stock or a duly qualified group of shareholders who have held their shares in registered form for at least two years and
together hold at least 1% of Air France-KLMs voting rights. In addition, only shareholders or groups of shareholders representing at least 5% of Air Frances share capital may submit proposed resolutions for meetings of shareholders. As a
result, the ability of holders of our shares to participate in and influence our governance is limited.

As a foreign private issuer, we are permitted to file less information with the SEC, which may limit the information available to holders of our
securities.

As a foreign private issuer, we are exempt
from rules under the Exchange Act that impose certain disclosure and procedural requirements for the solicitation of proxies for shareholder meetings. In addition, our officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports with the SEC as
frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act are required to file their reports. Therefore, there may be less publicly available information about Air France-KLM than is regularly published by or
about other public companies in the United States.

Our ADS
and ordinary share price could be volatile and could drop unexpectedly and investors may not be able to sell their ADRs or ordinary shares at or above the price they paid.

The price at which our ADSs and ordinary shares trade may be influenced by a large number of factors, some of which will be
related to the airline industry and equity markets generally. As a result of these factors,

investors may not be able to resell their ADSs or ordinary shares at or above the price which they paid for them. In particular, the following factors, in
addition to other risk factors described in this section, may have a significant impact on the market price of our ADSs or ordinary shares:



Announcements by us of intended acquisitions, disposals or financings or speculation about such acquisitions, disposals or financings;



Sales of blocks of our shares by significant shareholders;



Potential litigation involving us or the airline industry generally;



Changes in recommendations by securities research analysts;



Fluctuations in foreign exchange rates and fuel prices;



The performance of other companies in the airline sector;



Regulatory developments in the principal markets in which we operate;



International political and economic conditions, including the effects of terrorist attacks, military operations and other developments stemming from such events and the uncertainty
related to these developments; and

Air France and KLM officially announce their combination by means of an exchange offer for all outstanding KLM common shares in exchange for Air France shares and Air France warrants,
including Air France shares in the form of ADSs and Air France warrants in the form of ADWs.

October 16, 2003

Air France and KLM finalize the combination agreements including specific agreements between Air France and the former shareholders of KLM, including the Dutch State.

February 11, 2004

Approvals for the combination are granted by the European and American antitrust authorities.

March 29, 2004

Approval for the combination is granted by the French Commission on Holdings and Transfers (Commission des participations et des transferts).

April 5, 2004

Air France commences its exchange offer for all outstanding KLM common shares.

May 5, 2004

Air France shares are admitted to official listing on Euronext Amsterdam. Air France ADSs and ADWs are listed on the New York Stock Exchange.

September 15, 2004

Hive down to transfer all the assets and liabilities of Air France, with the exception of treasury shares and Alitalia and KLM shares, to Air France-Compagnie Aérienne, a subsidiary
company that changed its name to Air France. Reorganization of the group structure under Air France-KLM, a holding company for two principal operating subsidiary airlines, Air France and KLM.

Our corporate
existence will continue, subject to dissolution or prolongation, until July 3, 2045.

Our registered office is located at 2, rue Robert Esnault-Pelterie, 75007 Paris, France and our telephone number is +33 1 41 56 78 00. Our postal address is 45, rue de Paris, 75747 Roissy CDG Cedex, France. We have
designated Air France as our agent in the United States located at 125 West 55th Street, New York, NY 10019.

The Combination with KLM and the Exchange Offer

On October 16, 2003, Air France entered into the framework agreement with KLM in which Air France agreed to combine with KLM. The framework agreement
provided for, among other things, an exchange offer for all KLM common shares, the establishment of an administered shareholding structure intended to protect KLMs international air traffic rights during an interim period of three years, the
conduct of a hive down, whereby Air France has incorporated a wholly-owned subsidiary into which the assets, liabilities, businesses and operations of société Air France have been transferred, KLMs admission into the
SkyTeam alliance and corporate governance arrangements for Air France-KLM. As a result of the combination, the French State no longer owns a majority of our share capital.

On April 5, 2004, Air France commenced its exchange offer for all of the outstanding KLM common shares, including KLM
common shares in the form of ordinary shares and New York registry shares.

Upon closing of the subsequent offer period on May 21, 2004, holders of KLM common shares had tendered a total of 45,093,299 KLM common shares, representing approximately 96.33% of KLMs common

shares. Air France was effectively privatized as a result of the issuance of new Air France shares in the exchange offer, as the ownership of the French
State was reduced to 44.7%. A limited number of KLM common shareholders who had not tendered in the exchange offer subsequently contacted us offering to sell their shares. We have entered into a number of privately negotiated transactions after
which we currently hold 97.5% of the economic rights and 49% of the nominal share capital and voting rights in KLM. Pursuant to the framework agreement, Air France also purchased all of KLMs outstanding priority shares, which give Air France
certain special governance rights in KLM, and purchased depositary receipts representing all of KLMs cumulative preference shares C. In addition, Air France entered into agreements entitling Air France-KLM to acquire cumulative preference
shares A in KLM at the same time and in the same proportion that the French State reduces its shareholding in Air France-KLM, or more rapidly at the discretion of the State of the Netherlands.

The Administered Shareholding

To permit the combination and with the aim of preserving KLMs air
traffic rights during an interim period of three years, Air France and KLM entered into administered shareholding arrangements with the State of the Netherlands. Under these arrangements, our direct ownership of, and voting rights in, KLM are, for a
period of three years, limited to 49% of KLMs nominal share capital. Air France-KLM currently directly owns all of KLMs priority shares and a number of KLM common shares representing, together with the KLM priority shares, 49% of
KLMs nominal share capital and voting rights.

In
addition, Air France-KLM owns depositary receipts representing KLM common shares tendered in the exchange offer in excess of 49% of the nominal share capital and voting rights of KLM. These depositary receipts carry the economic rights, but not the
voting rights, of the underlying KLM common shares. The underlying KLM common shares are held by Stichting Administratiekantoor KLM (SAK I), a foundation incorporated under Dutch law. Air France-KLM also owns depositary receipts representing
KLMs cumulative preference shares C. These depositary receipts carry the economic rights, but not the voting rights, of the underlying cumulative preference shares C. The underlying cumulative preference shares C are held by Stichting
Administratiekantoor Cumulatief Preferente Aandelen C KLM (SAK II), another foundation incorporated under Dutch law. Each of SAK I and SAK II are managed by a board of three independent persons, one of whom was appointed by Air France, one by
KLM and a chairman was appointed jointly by the appointees of Air France and KLM. A majority of the board members of each foundation, including the chairman, are Dutch nationals and residents. The decisions of each foundations board must be by
unanimous consent.

As of the date of this annual report, the
State of the Netherlands owns KLM cumulative preference shares A equal to 5.9% of the voting rights in KLM. The State of the Netherlands has agreed to decrease its ownership in KLM proportionally to any decrease of the French States ownership
in Air France-KLM, by selling and transferring the relevant cumulative preference shares A to Air France-KLM or, if the transfer occurs before May 6, 2007, to SAK I, which in turn shall issue the corresponding depository receipts to Air
France-KLM. If it chooses, the State of the Netherlands may sell and transfer, and Air France-KLM will be obligated to buy, cumulative preference shares A in addition to those required by any decrease in the French State shareholding. After
May 6, 2007, Air France-KLM will be able to purchase cumulative preference shares A from the State of the Netherlands directly.

Air France-KLM may, at its sole discretion, retain this or a different form of administered shareholding arrangements after May 6, 2007.

The following chart sets forth the current structure of Air France-KLM at the date of this annual report:

The Hive Down

On September 15, 2004, Air France transferred its assets, liabilities,
businesses and operations to a wholly-owned subsidiary in the hive down. In the same meeting, Air France changed its corporate name to Air France-KLM. Immediately thereafter, shareholders of the wholly-owned subsidiary approved the transfer of such
assets, liabilities, businesses and operations to it and approved the issuance of shares to Air France-KLM in connection therewith. In the same meeting, the wholly-owned subsidiary changed its corporate name to société Air France. The
hive down enables the wholly-owned subsidiary (under its new name société Air France) to carry out the businesses and operations previously conducted by Air France prior to the hive down.

We envisage that the combined group will ultimately be structured as one
listed holding company, Air France-KLM, holding 100% of the nominal share capital and voting rights in two principal operating subsidiaries, Air France and KLM, as set forth in the chart below:

Intergovernmental Declaration of
Understanding

The French State and the State of the
Netherlands signed an intergovernmental declaration of understanding on October 16, 2003 acknowledging the importance of Roissy-CDG and Schiphol airports and declaring that the two countries will take into account the establishment of Air
France-KLM in formulating airport policy and, more broadly, civil aviation policy. The two States have agreed to inform each other of air services negotiations

of common interest with non-E.U. countries, consult with each other on developments of common interest in European civil aviation policy (specifically air
transport relations with non-E.U. countries) and provide mutual assistance in the event of major difficulties with non-E.U. countries, particularly where airline traffic rights could be jeopardized due to changes in capital structure or due to an
obstacle to commercial market access. According to the declaration, a committee chaired by the French and Dutch Directors-General of Civil Aviation will meet regularly to supervise the process of mutual information and coordination.

In the declaration, the French State committed, among other things, to reduce
its shareholding in Air France-KLM, in one or more stages, to less than 20%, as soon as market conditions permit. The French State also undertook to vote its Air France-KLM shares in favor of the nomination to the Air France-KLM board of directors
of a representative of the State of the Netherlands as long as it will have its own representative(s) on the Air France-KLM board of directors. In addition, both countries have agreed to reduce their equity participation in Air France-KLM, in the
case of the French State, and in KLM, in the case of the State of the Netherlands, by a similar proportion over time, although the State of the Netherlands may reduce its shareholding more rapidly. KLM, Air France and the State of the Netherlands
have agreed separately that Air France and KLM shall ensure that the place of effective management of KLMs existing transport enterprise will be retained in the Netherlands for purposes of Dutch tax and the France-Netherlands double taxation
convention at least until the bilateral treaty is ratified or the current convention is amended.

Assurances and Assurances Foundation

Air France and KLM granted assurances to the State of the Netherlands to preserve the network quality of KLM at Schiphol airport, while taking into
account the best interests of Air France-KLM and its shareholders. The assurances granted to the State of the Netherlands have a term of five or eight years from May 6, 2004, depending on the assurance in question. In particular, the State of
the Netherlands has agreed that each of Air France and KLM will remain an airline company operating from its home base in France and the Netherlands respectively and that each will retain its air operation certificate and operating licenses and will
continue to fulfill the conditions necessary to maintain such licenses. In addition the State of the Netherlands has agreed to maintain KLMs current portfolio of air traffic rights, other than those that have not been used by KLM for a period
of 12 months.

Air France and KLM also agreed to various
assurances to preserve their respective long-term interests, while taking into account the best interests of Air France-KLM and its shareholders. These assurances have a term until May 6, 2009, but will be evaluated after May 6, 2007. In
particular, the combined group has committed to maintain and ensure a fair long-term development of international and intercontinental services on overlapping routes to and from both Roissy-CDG and Schiphol airports. Air France and KLMs
commitment to fair capacity development of both hubs includes a commitment that neither Air France nor KLM will change a unique passenger destination into a destination served by both hubs, unless certain conditions are met. In addition, Air France
and KLM agreed to make investments, when economically justified, in both the cargo and passenger businesses at both Roissy-CDG and Schiphol airports.

Air France and KLM have established a foundation in the Netherlands to facilitate compliance with both sets of assurances. The foundation will, if
requested to do so, render binding advice regarding possible contraventions of the assurances by Air France or KLM.

Tripartite Alliance Coordination Agreement

On September 30, 2003, Air France, KLM and Alitalia entered into a tripartite agreement listing the conditions and principles under which Air France,
KLM and Alitalia will conduct a three-way commercial alliance. Air France, Alitalia and KLM intend to establish a cargo partnership to integrate their cargo business and activities. Discussions among the parties are currently ongoing.

In the framework agreement, Air France and KLM agreed to an extensive set of principles that will apply to the corporate
governance and organization of Air France-KLM, including the establishment of the strategic management committee. For further information on our management structure, see Item 6: Directors, Senior Management and Employees.

History of Air France

The main stages in the development of Air France were:

1933

Air France is born out of the combination of five French airlines.

1945

Air France is nationalized.

1946

The Paris-New York service is inaugurated with a DC4 and a flight time of 23 hours and 45 minutes.

1959-1960

The first Caravelle and Boeing 707 aircraft are brought into service, with the latter model reducing the time of the Paris-New York service to 8 hours.

1976

Concorde is commissioned, first on the Paris-Rio, Paris-Caracas and Paris-Washington routes and then Paris-New York the following year, connecting the two cities in 3 hours and 45
minutes.

1990

Air France acquires UTA, founded in 1963.

1992

Air France and UTA merge, giving Air France a 72% stake in Air Inter after combining its own interest in this company with that of UTA.

1996

Air Inter becomes Air France Europe.

1997

Air France Europe is merged with Air France.

1999

Air France is successfully floated, with the participation of 2.4 million private individuals, international institutional investors and 72% of staff. Air France is listed on the Monthly
Settlement Market for the first time on February 22, 1999.

2000

SkyTeam and SkyTeam Cargo are launched. Air France is a founding member of these alliances alongside Aéromexico, Delta and Korean. The regional division is created following the
acquisition of Régional Airlines, Flandre Air, Porteus, Brit Air and CityJet.

2001

The Open Sky agreement is concluded between France and the United States. Alitalia and CSA join the SkyTeam.

2002

SkyTeam is the only alliance in the world to benefit from anti-trust immunity on its transatlantic and transpacific flights.

2003

Air France celebrates its 70th anniversary.

2004

The Air France-KLM group is created, cementing its position as the European air transport market leader. Air France is privatized following the transfer of the majority of its shares to the
private sector as a result of the public exchange offer on KLM.

History of KLM

The main stages in the development of KLM were:

1919

KLM is founded as the royal Dutch airline for the Netherlands and its Colonies.

KLM offers its first transatlantic service from Amsterdam to Curaçao using a Fokker FXVIII Snip.

1946

KLM inaugurates a regular service between Amsterdam and New York.

1958

KLM completes its first flight to Japan flying over the North Pole.

1989

KLM concludes an alliance with Northwest Airlines.

2002

KLM announces the renewal of its fleet, with the arrival of the Boeing B747-400ER Freighter, the Boeing B777-200ER and the Airbus A330-200.

2004

KLM and Air France announce the conclusion of an agreement to create Europes leading Airline group. KLM, Northwest Airlines and Continental Airlines join the SkyTeam alliance in
September 2004.

Key events of Air France-KLM during
the financial year ended March 31, 2006

The market in
which we operated during the financial year ended March 31, 2006 was characterized by strong activity within the context of rising fuel prices. The price of fuel rose continually during the financial year ended March 31, 2006 to reach
historic levels with a price per barrel of U.S.$66.94 (International Petroleum Exchange (IPE) price for Brent crude) at March 31, 2006. Air France and KLM each implemented further fuel surcharges to offset a portion of the additional fuel
costs.

In addition, during the financial year ended
March 31, 2006, the key developments in our business included the following:

Adoption of IFRS

We
adopted IFRS as adopted by the E.U. for the first time starting on April 1, 2005. For a more detailed discussion of the transition to IFRS, see Item 5: Operating and Financial Review and Prospects  Basis of Preparation and the
section of our consolidated financial statements entitled Transition from French Accounting Standards to IFRS.

Zero Commission to Travel Agencies

From April 1, 2005, Air France no longer pays commissions to travel agents. This follows the transition to a zero commission by KLM from
January 1, 2005. This transition has resulted in substantial savings for the financial year ended March 31, 2006. Part of these savings have been passed on to passengers through a reduction of fares.

Sale of KLM Shares by the State of the Netherlands

In accordance with the terms of the intergovernmental declaration of
understanding between the French State and the State of the Netherlands signed October 16, 2003, requiring the State of the Netherlands to reduce its shareholding of KLM shares in proportion to any reduction by the French State of its
shareholding of Air France Shares, the State of the Netherlands executed a deed to transfer 5,103,855 KLM cumulative preference shares A to SAK I on April 5, 2005. This sale was required under the declaration of understanding following the sale
of Shares by the French State.

Offering by Air France of
Bonds due April 1, 2020 Convertible into and/or Exchangeable for New and/or Existing Shares of Air France-KLM

On April 22, 2005, Air France sold 450 million of bonds convertible and/or exchangeable for Air France-KLM shares (OCEANE). The 21,951,219 Air
France bonds, with a unit face value of 20.50, give the

right to the allotment of new and/or existing shares of Air France-KLM on the basis of one share per bond. This allotment may be made at any time from
June 1, 205 until March 25, 2020. The bonds will mature on April 1, 2020 and may be redeemed at par. The bonds have been listed for trading on the Eurolist market of Euronext Paris since April 22, 2005.

Amadeus GTD

Amadeus Global Travel Distribution S.A. is an information technology company
providing IT solutions for the global travel and tourism industry. During the financial year ended March 31, 2005, Air France, Iberia Líneas Aéreas de España S.A., Deutsche Lufthansa AG (through its subsidiary Lufthansa
Commercial Holdings GmbH) and Amadeulux Investment S.A. initiated negotiations with private equity funds in order to launch a public offer for class A shares of Amadeus Global Travel Distribution, S.A. through a newly incorporated company, Wam
Acquisition S.A. The offer commenced on May 25, 2005 and closed on June 27, 2005. The offer was accepted by 94.73% of the shares to which the bid was addressed and 98.74% of the total share capital of Amadeus GTD. Following the offer, Air
France, through Wam Acquisition S.A., indirectly holds 23.4% and Air France together with Iberia Líneas Aéreas de España S.A., Deutsche Lufthansa AG (through its subsidiary Lufthansa Commercial Holdings GmbH), through Wam
Acquisition S.A., indirectly hold 45.92% of Amadeus GTD.

The
consideration offered by Wam Acquisition S.A. was 7.35 per class A share of Amadeus. This price represented a 49.4% premium with regard to the closing price of Amadeus shares on the last trading day prior to August 17, 2004, the date on
which the first relevant fact informing the market on the interest of several investors in Amadeus was published.

This transaction has permitted Air France to remain a shareholder of Amadeus and to earn gross cash proceeds of approximately 800 million.

Launch of Flying Blue

On June 1, 2005, we merged the Air France Fréquence
Plus and the KLM Flying Dutchman programs into one frequent flyer program called Flying Blue. With ten million members, Flying Blue is the basic tool by which the customer relations divisions of both airlines may
recognize their loyal customers and provide them with high quality service, regardless of the airline on which they travel. The launch of this joint frequent flyer program was voted Best International Mailing 2005 in the French Direct
Marketing and Retail awards.

In cooperation with more than 30
partner airlines, as well as the member airlines of SkyTeam, Flying Blue enables customers to earn and redeem miles for travel on one of 18,000 daily flights operated by SkyTeam member airlines as well as with 130 air or commercial partners. Since
the launch of the program, 1.2 million new members have joined Flying Blue, of which 40% signed up using the Air France and KLM internet sites.

Launch of Joint Cargo Team

In October 2005, Air France Cargo and KLM Cargo combined their sales, distribution and marketing networks as well as strategy and development into one
sole division, the Joint Cargo Team. This principle of one face to the customer allows us to offer all our customers one contact, one contract and a single network with the choice of two operational systems, via Roissy or
Schiphol or a combination of the two hubs.

US Authorities
Deny Global Anti-Trust Immunity Between the European Members of SkyTeam and Delta Air Lines and Northwest Airlines but Grant Code-Sharing Authority

On December 23, 2005, the U.S. Department of Transportation issued a Show Cause Order that proposed to positively grant code-sharing authority to the
six members of the SkyTeam international aviation alliance, Air France, KLM, Alitalia, CSA Czech Airlines, Delta Air Lines and Northwest Airlines, to enhance their short term

network benefits. The decision, at the same time, however, proposes to deny the request of these airlines for anti-trust immunity. Air France and KLM have
filed comments with the U.S. Department of Transportation and are currently awaiting a final decision.

Business of Air France-KLM

For the financial years ended March 31, 2006 and 2005, we prepared our financial information and presented our measures of operating performance on an Air France-KLM consolidated basis including the financial condition and results
of operations or operating performance of KLM for the entirety of the financial year ended March 31, 2006 and for 11 months of the financial year ended March 31, 2005. Prior to the business combination with KLM, for the financial year
ended March 31, 2004, such information was compiled separately by Air France and by KLM. To the extent financial information or operating data is presented for the financial year ended March 31, 2005, we have, where indicated, presented
such information on a pro forma basis to enable a better appreciation of the financial or operating results that might have been achieved if the financial condition and results of operations or operating performance of KLM had been consolidated over
12 months. This information is included solely for illustrative purposes and, accordingly, does not necessarily reflect the combined operating data that Air France-KLM could have recorded on the dates or for the periods indicated.

Introduction

We are one of the largest airline groups in the world, ranking first
worldwide in terms of turnover as of December 31, 2004 according to IATA, and first among airlines in Europe in terms of traffic (revenue passenger-kilometers) for the financial year ended March 31, 2006, according to the Association of
European Airlines (AEA), with an overall market share of 27%.

The combination of Air France and KLM has also created a European and global leader in cargo activities. Excluding integrators (companies devoted exclusively to cargo), we are the largest cargo company in Europe in terms of scheduled
freight tons carried as of March 31, 2006, according to the AEA. Air France and KLM are also active in the field of aircraft maintenance and are one of the worlds leading suppliers of maintenance services.

Air France and KLM organize their networks around two main hubs at Roissy-CDG
and Amsterdam Schiphol airports.

Our core business of
passenger transportation accounted for 79% of our total operating revenues of 21.5 billion for the financial year ended March 31, 2006. Cargo activities were 13.4% of total operating revenues for the financial year ended March 31,
2006, industrial maintenance activities were 4% of total operating revenues for the financial year ended March 31, 2006 and other air transport-related activities were 3% of total operating revenues for the financial year ended March 31,
2006.

The financial year ended March 31, 2006 was marked
by strong global growth for the air transport sector, dynamic passenger activity with a record load factor, a diminishment in cargo activity affected by the weakness in European exports and sustained increases in oil prices throughout the year, with
an increase of more than 50%, breaking the record $70 a barrel threshold on April 13, 2006.

Despite the continued recovery in traffic levels in 2005, with growth worldwide of approximately 7.5% according to IATA, increased fuel costs have
resulted in losses in the air transport sector of U.S.$6 billion during 2005. The air transport sector spent U.S.$92 billion on jet fuel in 2005, counteracting most cost-cutting efforts of airlines and the impact of the general economic recovery.
According to IATA, the total losses of the international airline industry for the period 2001 to 2005 are expected to reach U.S.$43.6 billion.

Recent airline industry trends in the three main geographic zones  Europe, the United States and Asia  have nevertheless differed
significantly.

Asian airlines, after having suffered significantly diminished growth in 2003 as a result of the SARS
epidemic, have strongly recovered due to the economic growth in this region.

In the United States, most airlines have not been profitable since 2001. Confronted with structural problems, including significant wage increases in 2000 and 2001 and competition from low-cost companies which have
conquered nearly 30% of the North American domestic market, U.S. airlines are facing higher fuel prices without the ability to implement hedging policies as in general their financial positions are too weak. Despite federal assistance of several
billion dollars and drastic cost-cutting plans and wage concessions, the U.S. air carriers accumulated $10.8 billion in losses in 2005.

In Europe, airlines that are members of the AEA have benefited from the recovery in traffic. During 2005, traffic grew 6.2% with a 4.3% increase in
capacity. Slightly more than 320 million passengers, representing an increase of 4.2% over 2004, traveled to and from the 49 countries included within Europe as defined by the AEA. Non-U.S. airlines have also had some protection from rising
fuel prices because of the weakness of the U.S. dollar, particularly against the euro. In recent years, the airline industry has seen the emergence of low-cost air carriers that typically engage in aggressive marketing and compete with all
transportation carriers. In Europe, there were over 41 low-cost airlines in 2005, but there are two dominant low-cost airlines  Ryanair and easyJet  which have slightly less than 50% market share of the low-cost market segment. We
believe that the growth of low-cost airlines has not occurred through a transfer of traffic from scheduled airlines but through the creation of a new market and the winning by low-cost airlines of a large percentage of the general growth in traffic
among price-sensitive passengers. The European low cost airlines are present in the five major domestic markets (but unevenly so) and on intra-European routes, primarily from Great Britain to Germany, France and Italy. During the financial year
ended March 31, 2006, 29% of low-cost flights were on domestic routes (13% in the United Kingdom, 17% in Germany and 1% in France) and 71% on intra-European routes, primarily from Great Britain to Germany, France and Italy.

While low-cost airlines are present in the French domestic market, the strong
presence of the French high speed rail network, as well as the Air France domestic shuttle, has limited the interest and impact of low cost airlines. easyJet is the only low-cost airline to operate flights from Paris to Toulouse and to Nice, where
there is no high-speed traincompetition. In March 2005, easyJet terminated flights from Paris to Marseille, where the high-speed trains market share is approximately 60%.

We realized operating income of 936 million for the financial year ended March 31, 2006. We believe that these
results evidence the efficient pursuit of our goal of profitable growth built around our complementarities which allow us to exploit the synergies offered by the business combination of Air France and KLM, and controlling costs and improving
productivity.

Strategy

We pursue a strategy of profitable growth, supported by the complimentarily
of Air France and KLM in their three businesses (passenger, cargo and maintenance) and by ongoing cost reduction.

Our profitable growth strategy consists developing our business in targeted zones to respond to demand, customer expectations and trends within the
sector. Within the framework of the business combination, this objective is accompanied by a pragmatic approach adapted to the challenges specific to each business. In passenger transport, we coordinate our networks and teams but have retained two
separate brands: Air France and KLM. In cargo transport, a single division, the Joint Cargo Team, has been created to manage sales, distribution, marketing and the network, together with strategy and development. In aeronautical maintenance, we have
opted to establish technical centers, based on each of Air Frances and KLMs expertise.

Our strategy is accompanied by strict cost control, reflected in the cost savings plans implemented in each of Air France and KLM, supported by the
development of new technologies and a fleet management policy combining flexibility and modernization.

Exploiting the synergies offered by the business combination of Air France and KLM

Air France and KLM have combined their businesses
around the concept of one group, two airlines. The objective of this concept is to respect the identity, brand and cultures of the two airlines while achieving common results of operations. We believe that the similar business approaches
of Air France and KLM to each of their core businesses of passengers, cargo and maintenance operations serve as a firm foundation for Air France-KLM.

Prior to the business combination, we valued the synergies of the combination at 385 million to 495 million per year after five years
following completion of the offer (the financial year ended March 31, 2009). The coordination of the operations and teams of Air France and KLM have accelerated the development and the delivery of these synergies, which we revise upwards
regularly. We currently estimate the synergies to reach 670 million by the financial year ended March 31, 2009. For the financial year ended March 31, 2006, the total amount of synergies realized was 350 million.

Each business segment has contributed to the generation of synergies for the
financial year ended March 31, 2006. Passenger activity has generated approximately 174 million in synergies, of which approximately 114 million from marketing and revenue management, 56 million from the implementation of a
joint frequent flyer program, 33 million from continued network rationalization and the balance from other initiatives. Cargo has generated 26 million in synergies primarily as a result of an exchange of capacity and a streamlined
network. Maintenance synergies totaled approximately 25 million and are related to the implementation of a joint purchasing policy based on a common strategy for products and suppliers.

For the financial year ended March 31, 2007, the total amount of
synergies is currently estimated at 465 million, compared with our initial estimate of 225 million to 270 million. At the end of the fifth year, we currently estimate that synergies should total 600 million, divided between
380 million of cost synergies and 290 million revenue synergies.

Complementary Hubs

We
expect to achieve substantial further synergies by coordinating flights at our two hubs, Roissy-CDG and Schiphol airports. We believe that the potential to expand capacity at the two airports will constitute a significant competitive advantage for
Air France-KLM because customers will be able to select more destinations with better schedules and Air France and KLM will derive cost advantages from increased economies of scale.

Complementary Passenger Operations

We believe that Air Frances and KLMs passenger operations are highly complementary, especially with respect to
long-haul and medium-haul routes. Of a total of 101 long-haul destinations served by Air France and KLM as of March 31, 2005, only 31 were common to both Air France and KLM. We have retained most of these common long-haul destinations, as they
are routes with significant traffic flow and can therefore be served by both Air France from Paris and KLM from Amsterdam. We have improved and intend to further improve service to passengers by improving the schedule and the frequencies of the
flights. The combination has added 43 long-haul destinations to KLMs network and 27 long-haul destinations to Air Frances network. With respect to the European market, Air France has a stronger presence in Southern Europe while KLM has a
stronger presence in Northern Europe. We have improved and intend to further improve our business in Eastern Europe by taking advantage of synergies and efficiencies with respect to our passenger operations to Eastern European destinations.

We believe that the combination of the Air France and KLM
networks offers our passengers more destinations and better connections through full code sharing and the harmonization of flight schedules, the introduction of fare compatibility and the launching of a common frequent flyer program. We believe
that, by coordinating the marketing efforts and sales structures of Air France and KLM, we have an enhanced global presence capable of targeting and serving a larger pool of potential passengers.

Air Frances and KLMs existing partnerships also complement each other, particularly in the
United States, where SkyTeam partner Delta Airlines has an alliance with SkyTeam partners Northwest Airlines and Continental Airlines.

Complementary Cargo Businesses

As in passenger operations, we believe that the combination enables us to create and benefit from an extensive network for our cargo services. We believe
that as a result of the combination, we are the European leader in this sector. In addition, we believe that we benefit from significant efficiencies and cost savings in the cargo business through coordinated freighter planning and more efficient
hub handling in the cargo sector.

Complementary Aircraft
Maintenance Activities

Having combined Air France and
KLMs respective expertise and capabilities in aircraft maintenance, repair and overhaul services, we are one of the worlds largest maintenance, repair and overhaul service providers in terms of operating revenues. Air France and KLM each
enjoy strong relationships with major manufacturers of aircraft parts, including Airbus, Boeing and General Electric. We believe that we have sufficient scale and capacity to build on those relationships and meet the maintenance requirements of the
major global airlines, with capabilities to service the principal Airbus and Boeing products.

Controlling Costs and Improving Productivity

To meet the challenges of an industry in which unbalanced cost structures have adversely affected a number of airlines, we continue to place a major strategic focus on controlling costs and improving productivity. To
this end, since 1998 Air France has implemented a series of three-year cost-saving programs and in March 2004, KLM has implemented a three-year restructuring plan.

Air France implemented its latest three-year cost cutting program in April 2004. The objective of the new cost-savings plan
(Compétitivité Major 2007) is to improve unit costs over a three-year period by 6% (operating costs in an aggregate of 900 million, taking into account the zero commission paid to travel agencies). The
Compétitivité Major 2007 cost-savings program focuses on distribution costs, the reorganization of the European medium-haul product and enhanced productivity. As at March 31, 2006, Air France achieved 654 million in
savings. Finally, measures will also be taken to boost productivity, including, for example, the development of automatic check-in, improved productivity related to the gradual implementation of the Nouveau Espaces de Voyages (New Travel
Spaces) on long-haul flights which optimizes the ratio of number of seats per cabin crew member.

During the financial year ended March 31, 2006, KLM continued the three-year restructuring plan that it initiated in the financial year ended
March 31, 2004. Under the restructuring plan, KLM achieved savings of 200 million for the financial year ended March 31, 2004 and an additional 320 million in savings during the financial year ended March 31, 2005, for a
total of 520 million. KLM reached its target of 650 million in total savings for the financial year ended March 31, 2006. This restructuring plan has been extended a further year with a target of an additional 80 million in
savings has been set for the financial year ended March 31, 2007, which would bring total savings under the plan to 730 million. The plan includes changes in procedures, improved productivity (in particular, with the replacement of the
long-haul fleet), savings on purchases and the elimination of 4,500 jobs.

During the financial year ended March 31, 2007, we plan to implement new three-year cost savings and restructuring programs for each of Air France and KLM.

Additionally, we continued our fuel hedging policy which enabled us to
achieve hedging gains during the financial year ended March 31, 2006. For the financial years ended March 31, 2007 and 2008, we have already

hedged 77% and 37%, respectively, of our estimated consumption on the basis of a hedge price of U.S.$50 and U.S.$52 per barrel based on a market price of $72
(Brent IPE).

Organizational Structure

Our significant subsidiaries are as follows:

Subsidiary

Jurisdiction ofOrganization

Head Office

% of Interest

% of VotingRights

société Air France

France

Roissy-CDG, France

100

100

KLM

the Netherlands

Amstelveen, the Netherlands

97.5

49

société Air Frances significant subsidiaries are as follows:

Subsidiary

Jurisdiction ofOrganization

Head Office

% of Interest

% of VotingRights

Air France Finance

France

Roissy-CDG, France

100

100

Brit Air

France

Morlaix, France

100

100

CityJet

Ireland

Dublin, Ireland

100

100

Régional Compagnie Aérienne Européenne

France

Bouguenais, France

100

100

Servair

France

Roissy-CDG, France

98

98

None of KLMs
subsidiaries qualifies as a significant subsidiary as defined in SEC Regulation S-X.

Principal Activities of Air France-KLM

Our
three main businesses are passenger transportation, cargo operations and maintenance operations. Our other activities are related to air transport, and include principally catering and KLMs charter subsidiary transavia.com.

The charts below show the division of our operating revenues for the
financial years ended March 31, 2006 and 2005 from the different parts of the business:

Year ended March 31,

2006

2005Pro forma

2005Actual

(in  millions, except percentages)

Passenger

17,635

71.8

%

15,817

71.1

%

15,471

71.1

%

Cargo

2,907

11.8

%

2,598

11.7

%

2,516

11.6

%

Maintenance

2,688

10.9

%

2,600

11.7

%

2,578

11.8

%

Other

1,350

5.5

%

1,246

5.5

%

1,207

5.5

%

Total

24,580

100.0

%

22,261

100.0

%

21,772

100

%

Passenger Operations

Air transport services for passengers are our largest
revenue source, generating revenues of 17,635 million for the financial year ended March 31, 2006, representing 71.8% of consolidated revenues, an increase of 11.5% compared to the previous years 15,817 million on a pro forma
basis. Income from operating activities grew 78.6% from 384 million for the financial year ended March 31, 2005 on a pro forma basis to 686 million for the financial year ended March 31, 2006.

Our scheduled passenger operations generated revenues of 15,902 million for the financial year
ended March 31, 2006. The remainder of the groups revenues from passenger operations are provided by commissions from sales of SkyTeam alliance members flights and revenues from code sharing revenues, and receipts from baggage
handling and information systems services.

During the
financial year ended March 31, 2006, we operated flights to 247 destination cities and carried 70 million passengers. Through our membership in SkyTeam and its partnerships with approximately 30 airlines, our customers may access a global
network of approximately 15,000 flights and 728 destinations.

The following table shows the breakdown of passenger transportation on scheduled flights between long-haul and medium-haul, together with the load factors, for the financial years ended March 31, 2006 and 2005, on a pro forma and
actual basis, and the change between such periods:

Year ended March 31,

2006

2005Pro forma

Change

2005Actual

(in millions, except percentages and point changes in load factor)

Long-haul:

Capacity (ASK)(1)

180,733

168,284

7.4

%

163,216

Traffic (RPK)(2)

151,427

138,591

9.3

%

134,331

Load factor (RPK/ASK)

83.8

%

82.4

%

+1.4

82.3

%

Medium-haul:

Capacity (ASK)(1)

53,936

52,614

2.5

%

51,390

Traffic (RPK)(2)

37,825

35,620

6.2

%

34,667

Load factor (RPK/ASK)

70.1

%

67.7

%

+2.4

67.5

%

Total:

Capacity (ASK)(1)

234,669

220,897

6.2

%

214,606

Traffic (RPK)(2)

189,253

174,211

8.6

%

168,998

Load factor (RPK/ASK)

80.6

%

78.8

%

+1.8

78.7

%

Notes:

(1)

Available seat-kilometers. See Definitions and industry terms.

(2)

Revenue passenger-kilometers. See Definitions and industry terms.

The following table below shows scheduled passenger revenues by destination and the percentage of total scheduled passenger
revenues by destination for the financial years ended March 31, 2006 and 2005, on a pro forma and actual basis, and the change between such periods:

The table below shows scheduled passenger revenues by area of sale and the percentage of total scheduled
passenger revenues by area of sale for the financial years ended March 31, 2006 and 2005 on a pro forma and actual basis, and the change between such periods:

Scheduled Passenger Revenue by Area of Sale(1)

Year ended March 31,

2006

2005Pro forma

2005Published

(in  millions, except percentages)

% oftotal

% oftotal

%change

% oftotal

Europe (including France)

10,726

67.5

%

9,936

68.9

%

8.0

%

9,718

68.9

%

Caribbean, French Guiana and Indian Ocean

363

2.2

%

351

2.4

%

3.4

%

348

2.5

%

Africa and Middle East

1,060

6.7

%

962

6.7

%

10.2

%

939

6.7

%

Americas, Polynesia

2,523

15.9

%

2,050

14.2

%

23.1

%

1,997

14.2

%

Asia, New Caledonia

1,230

7.7

%

1,126

7.8

%

9.2

%

1,097

7.8

%

Scheduled passenger revenues

15,902

100.0

%

14,425

100.0

%

10.2

%

14,099

100.0

%

Other passenger revenues

1,040

954

11.4

%

934

Total passenger revenues

16,942

15,379

12.7

%

15,033

Note:

(1)

Origin of sale is determined on the basis of ticket issuing locations.

The Long-Haul Network

Our long-haul network consists of 115 destinations in 66 countries, including 33 destinations operated by KLM alone and 49 operated by Air France alone.
Only one-third of the destinations are served by both Air France and KLM, to which, due to the coordination of the two hubs supported by fare combinability, we offer a high number of daily flights. During the financial year ended March 31,
2006, the long-haul network reported strong growth, with an increase of 9.1% on a pro forma basis in passengers carried to 21.1 million. During the same period, the long haul network represented 77.0% of capacities (as compared to 76.2% on a pro
forma basis during the financial year ended March 31, 2005) and approximately 80.0% of traffic (as compared to approximately 79.6% on a pro forma basis during the financial year ended March 31, 2005). For the financial year ended
March 31, 2006, revenues from our long-haul passenger traffic were 9.4 billion, an increase of 13.5% on a pro forma basis over such revenues during the financial year ended March 31, 2005, and represented 59% of total scheduled
passenger revenues. During the same period, total long-haul capacity grew by 7.4% on a pro forma basis and traffic rose 9.3% on a pro forma basis, while the load factor increased 1.4 points to 83.8%.

The table below shows the volume of long-haul capacity, traffic and load
factor by geographical area during the financial year ended March 31, 2006, and the change in these operating measures as compared to the previous financial year on a pro forma basis:

During the financial year ended March 31, 2006, routes to the Americas represented operating revenues of 3.5 billion, or 22.3% of scheduled passenger revenue (as compared to 3.0% for the financial year ended March 31,
2005 on a pro forma basis), 30.6% of total passenger capacity and 32.8% of total traffic. The North and Latin American markets cover 28 destinations in ten countries, of which 18 destinations in North America and ten in eight Latin American
countries. Our leading network both in terms of traffic and capacity, it represented 32.8% of total traffic, an increased of 1 percentage point on a pro forma basis compared to the financial year ended March 31, 2005, and 30.6% of capacity,
compared to 29.3% on a pro forma basis for the financial year ended March 31, 2005. Activity was strong with 11.6% growth in the number of passengers to 8.4 million and 17.2% growth in sales to 3.5 billion, increasing this
sectors share of total scheduled passenger revenues by 1.5% to 22.3%.

Our operations cover 18 destinations in North America out of Paris and/or Amsterdam and, due to our American partners through the SkyTeam Alliance, a more extensive network across the United States. To respond to
customer demand for oil industry-related destinations, KLM launched as part of its 2005-2006 winter schedule, a new Amsterdam-Houston (Texas) route operated by Boeing 737-700s equipped with exclusively KLM World Business Class seats.
This new service is operated through code-sharing with Northwest Airlines and is in addition to the flight already operated by KLM between Amsterdam and Houston. This new route completes our services for oil and gas industry-related traffic,
launched in 2004 with Air Frances Dedicate product principally to Africa. Furthermore, Air France has added Detroit to its U.S. destinations.

The North American network reported a record load factor of 87.0% for the financial year ended March 31, 2006, an increase of 1.3 points compared to
the financial year ended March 31, 2005, with an increase in traffic of 8.8%. In January 2006, Air France was voted 2005 best transatlantic airline by readers of the U.S. monthly Global Traveler Magazine. These same readers also
named the SkyTeam Alliance, of which both Air France and KLM are members, 2005 best airline alliance.

We offer ten destinations in ten South American countries out of Paris and/or Amsterdam. This market has experienced strong capacity growth of 20.4%
compared to the financial year ended March 31, 2005 due in large part to the launch of a direct flight from Paris to Santiago, Chile, the longest flight in our long-haul network. Traffic increased 19.9% compared to the financial year ended
March 31, 2005 allowing the load factor to maintain a high level of 84.7%.

Asia

During the
financial year ended March 31, 2006, Asian routes generated operating revenues of 2.4 billion, or 15.3% of our scheduled passenger revenue (as compared to 14.7% for the financial year ended March 31, 2005 on a pro forma basis), 21%
of the total passenger capacity and 22% of the groups total traffic. We serve 22 destinations in 11 countries in Asia directly. During the financial year ended March 31, 2006, 4.6 million passengers traveled on these routes, an
increase of 12.7% as compared to 4 million during the financial year ended March 31, 2005 on a pro forma basis.

During the financial year ended March 31, 2006, we inaugurated new flights to India. From Paris, flights were introduced to Bangalore and Chennai in
cooperation with Delta and from Amsterdam to Hyderabad. China and India are now the main markets in this region with five destinations each, followed by Japan with three destinations.

The Asian market is the second-largest of the long-haul networks and represents approximately 22% of
total traffic and 21% of capacities. It has seen strong activity with an 11.9% increase in traffic and a 7.0% increase in capacity, resulting in a 3.7 point improvement in the load factor to 85.2%.

Africa and the Middle East

During the financial year ended March 31, 2006, routes to Africa and the
Middle East generated operating revenues of 2.2 billion or 14.1% of our scheduled passenger revenue (as compared to 13.7% for the financial year ended March 31, 2005 on a pro forma basis), 14.0% of the total passenger capacity and 13.5%
of the groups total traffic. We serve approximately 47 destinations in 37 countries in our Africa and Middle East network. During the financial year ended March 31, 2006, 4.9 million passengers traveled on these routes, an increase
of 9.2% as compared to 4.5 million during the financial year ended March 31, 2005 on a pro forma basis.

The Africa and Middle East network is our third-largest long-haul network. Activity was strong on this network with a 9.4% increase in traffic and a 10%
increase in capacities compared to the financial year ended March 31, 2005. The load factor remained broadly unchanged at 77.6%, a decrease of 0.4 points.

The African network serves 32 destinations in 25 countries. Political tensions in a number of African countries during the year meant that traffic
growth of 7.4% compared to the financial year ended March 31, 2005 on a pro forma basis, did not keep pace with growth in capacity of 9.5%. The load factor therefore fell by 1.6 points to 78.3%. In additional to its traditional offering, Air
France launched, in 2004, the Dedicate network to facilitate business travel to oil industry-related sites and areas of activity in more remote regions particularly in Africa. The four destinations offered have been a success.

The Middle East network covers 12 countries with over 15 destinations.
Activity has been strong in this network with an increase in traffic of 14.9% and in capacity of 11.2% compared to the financial year ended March 31, 2005 on a pro forma basis, resulting in a 2.5 point increase in load factor to 75.8%.

Caribbean and Indian Ocean

During the financial year ended March 31, 2006, routes to the Caribbean
and Indian Ocean generated revenues of 1.16 billion, or 7.3% of our scheduled passenger revenue (as compared to 7.8% during the financial year ended March 31, 2005 on a pro forma basis), 11.9% of total passenger capacity offered and 12.1%
of the groups total traffic. During the financial year ended March 31, 2006, 3.1 million passengers traveled on these routes, a decrease of 2.8% as compared to during the financial year ended March 31, 2005 on a pro forma basis,
due to the health crisis rife in this region. The health crisis has lead to a 2.8% reduction in capacity and a 1.5% decrease in traffic compared to the financial year ended March 31, 2005 on a pro forma basis.

This region has predominantly tourist, family and government traffic,
especially in the West Indies and Reunion Island.

The Medium-Haul Network

The table below shows the volume of medium-haul capacity
traffic and load factor for our medium haul network during the financial year ended March 31, 2006 and the change in these operating measures as compared to the previous financial year on a pro forma basis:

The international medium-haul network covers Europe (including France) and North Africa. The medium-haul network serves 126 destinations in 34 countries, of which 46 destinations are operated by Air France and its
regional subsidiaries Régional, Brit Air and City Jet and 23 destinations are operated by KLM and its regional subsidiary Cityhopper. 52 destinations are operated by both Air France and KLM.

Since April 2004, Air France has begun to simplify and redefine its
medium-haul offerings in response to strong competition and structural changes in customer demand in the European market. By simplifying and standardizing onboard services, such as meals, and optimizing the space used within individual aircraft, Air
France has been able to return to profitability on this network within two years rather than the three years initially planned.

During the financial year ended March 31, 2006, European medium-haul routes generated operating revenues of 6.5 billion, or 41.0% of our
scheduled passenger revenue (as compared to 42.7% for the financial year ended March 31, 2005 on a pro forma basis), 23.0% of the total passenger capacity and approximately 20.0% of the groups total traffic. During the financial year
ended March 31, 2006, 48.9 million passengers traveled on these routes, an increase of 5.2% as compared to during the financial year ended March 31, 2005 on a pro forma basis. Activity has been strong in this network with an increase
in traffic of 6.2% and in capacity of 2.5% compared to the financial year ended March 31, 2005 on a pro forma basis, resulting in a 2.4 point increase in load factor to 70.1%.

Cargo

Air France and KLM combined their capacities and synchronized their cargo networks around their respective hubs at Roissy-CDG and Amsterdam Schiphol.
Following this combination, Air France Cargo and KLM Cargo have combined their sales, distribution and marketing networks as well as strategy and development into one sole division, the Joint Cargo Team. This principle of one face
to the customer allows us to offer all our customers one contact, one contract and a single network with the choice of two operational systems, via Roissy or Schiphol or a combination of the two hubs.

A team of 162 managers, having joint responsibility for Air France Cargo-KLM
Cargo, has been established to manage and coordinate the Air France-KLM Cargo organization worldwide. As of March 31, 2006 nearly 50 of the 160 sales offices had been integrated into the joint Air France-KLM division.

Excluding integrators (companies devoted exclusively to cargo), Air
France-KLM is the largest cargo company in Europe in terms of scheduled freight tons carried as of March 31, 2006, according to the AEA. Cargo revenues are subdivided into freight transportation and other cargo revenues. Revenues from
freight transportation consist of the transportation of cargo on flights that have an Air France-KLM code, including flights that are operated by other airlines pursuant to code sharing agreements. Other cargo revenues derive principally from sales
of cargo capacity to third parties.

Our total revenues from
cargo were 2,882 million for the financial year ended March 31, 2006, an increase of 11.9% on a pro forma basis compared with the previous financial year, and represented 13.4% of Air France- KLMs operating revenue. Capacity (ATK)
during the year ended March 31, 2006 increased by 6.5%, while traffic (RTK) increased 3.5% compared to the year ended March 31, 2005 on a pro forma basis. Cargo activity was affected by the weakness in European exports, which resulted in a
slight decrease in the load factor by 1.9 points to 66.1%.

Cargo may be carried either on a cargo-only fleet or in the bays of passenger aircraft. Of our total
offered capacity, approximately half is typically carried in the holds of our cargo fleet and approximately half is typically carried in the holds of our passenger fleet. The increase in capacity in passenger activity thus has an impact on cargo
activity. Air France and KLM together maintain a fleet of 15 cargo aircraft

During the year ended March 31, 2006, we carried 1.42 million tons of cargo, representing 10,830 million revenue ton-kilometers, approximately 50% of which was carried in our cargo fleet, and
approximately 50% of which of which was carried in the holds of passenger aircraft.

In 2000, Air France obtained ISO 9002 certification for its cargo depots at Roissy-CDG. KLM possesses ISO 9001:2000 certification for its cargo depots at Amsterdam Schiphol.

The table below shows cargo revenues by destination and the percentage of
cargo revenues by destination for the financial years ended March 31, 2006 and 2005, on a pro forma and actual basis and the change between such periods:

Cargo Revenue by Destination

Year ended March 31,

2006

2005Pro forma

2005Actual

(in  millions, except percentages)

% oftotal

% oftotal

%change

% oftotal

Europe and North Africa

75

2.8

%

77

3.2

%

(2.6

)%

76

3.3

%

Caribbean, French Guiana and Indian Ocean

186

7.0

%

185

7.8

%

0.5

%

183

7.9

%

Africa and Middle East

320

12.0

%

306

12.9

%

4.6

%

297

12.9

%

Americas, Polynesia

833

31.2

%

719

30.2

%

15.9

%

699

30.4

%

Asia, New Caledonia

1,259

47.0

%

1,092

45.9

%

15.3

%

1,046

45.5

%

Scheduled cargo revenues

2,673

100.0

%

2,379

100.0

%

12.4

%

2,301

100.0

%

Other cargo revenues

209

197

6.1

%

193

Total cargo revenues

2,882

2,576

11.9

%

2,494

The table below shows
cargo revenues by sales region and the percentage of cargo revenues by sales region for the financial years ended March 31, 2006, 2005 and 2004, on a pro forma and actual basis, and the change between such periods:

The table below shows the volume of cargo capacity, traffic and load factor during the financial year
ended March 31, 2006 and the change in these operating measures as compared to the previous financial year as calculated on a pro forma basis:

Capacity(1)

Traffic(2)

Load Factor(3)

Volume

Change

Volume

Change

%

Change

(in  millions, except percentages)

Medium haul

544

(4.7

)%

85

(14.1

)%

15.6

%

(1.7

)

Long haul

15,850

6.9

%

10,745

3.7

%

67.8

%

(2.1

)

Notes:

(1)

Available ton-kilometers (ATK)

(2)

Revenue per ton-kilometers (RTK)

(3)

RTK/ATK

The Medium Haul Network

As cargo transport in Europe is primarily operated by truck, the activity of the European network is limited. Tonnage transported decreased 11.5% as compared to the previous financial year on a pro forma basis to 70 thousand tons,
following the 14.1% decrease in traffic. The load factor decreased 1.7 points to 15.6%.

The Long Haul Network

The long haul network
currently represents nearly all cargo activity, whether in terms of traffic or revenues.

The North and South American network accounted for 34% of traffic and of capacity and tonnage. Capacity increased 2.7% resulting in a decrease in load factor of 3.9 points to 65.9%. We transported 492 thousand
tons on this network, an increase of 2.6% compared to the previous financial year on a pro forma basis. Revenues increased by 15.9% to 833 million, representing 31.2% of freight transport revenues, compared to 30.2% for the previous financial
year on a pro forma basis.

The Asian network demonstrated
strong activity with a 4.6% increase in tonnage compared to the previous financial year on a pro forma basis, to 607 thousand tons. Capacity increased 6.2% on a pro forma basis compared to the previous financial year, leading to a decrease in
load factor by 1.1 point to 73.0%. Revenues for this network increased 15.3% on a pro forma basis compared to the previous financial year to 1.26 billion, representing 47.1% of total freight transport revenues, 51% of traffic and 46% of
capacity.

The African and Middle East network saw a
significant increase in tonnage transported, from 172 thousand tons for the previous financial year on a pro forma basis, to 184 thousand tons for the financial year ended March 31, 2006, an increase of 7.0%. This network represented
approximately 10% of the Groups cargo activity. Traffic increased 4.4% and capacity increased 8.6% over the previous financial year on a pro forma basis. The load factor decreased 2.4 points compared to the previous financial year on a pro
forma basis to 59.5%. Revenues, however, increased 4.6% compared to the previous financial year on a pro forma basis to 320 million and represented 12.0% of total freight transport revenues, the same level as in the previous financial year on
a pro forma basis.

The Caribbean and Indian Ocean network
experienced broadly flat capacity, with a decrease of 0.3% compared to the previous financial year on a pro forma basis. Traffic increased 0.7% compared to the previous financial year on a pro forma basis. The load factor increased 0.5 points
compared to the previous financial year on a pro forma basis to 53.7%. Tonnage transported on this network reached 75 thousand tons, an increase of 1.2% compared to the previous financial year on a pro forma basis, generating revenues of
186 million, an increase of 0.5% compared to the previous financial year on a pro forma basis. This network accounted for approximately 7% of total cargo activity.

Air France Cargo, KLM Cargo and SkyTeam Cargo alliance offer a common range of four products  Equation, Variation, Cohesion, and Dimension. Equation
offers express shipment and guarantees priority handling for shipments that are loaded without prior reservation on the first available departing flight. Variation offers solutions for the transportation of one-off merchandise such as live animals,
valuable artworks, heavy equipment and hazardous materials. Cohesion is a custom product intended for businesses making regular just in time shipments. Cohesion offers customers guaranteed regular access to shipping capacity and
integrated shipping solutions through a tri-partite contract between the shipper, the cargo agent and the groups cargo division. Dimension is the standard product offering airport-to-airport cargo shipping services to cargo agents.

These products are also offered by the SkyTeam Cargo alliance, which has
benefited from the expertise of KLM Cargo in pharmaceutical product transportation, with the introduction of the new Variation Pharma range. This new product, offered by all the eight member airlines of SkyTeam Cargo since May 2005, implies strict
respect of pharmaceutical products requiring stable temperatures ranging from -20°C to +20°C and the use of isothermal containers throughout the shipment,

This new product on the SkyTeam Cargo network meets the needs of pharmaceutical company customers who are looking for
reliable, effective and rapid execution of the special delivery requirements worldwide.

Industrial Logistics and Aircraft Maintenance Activities

The business combination of Air France and KLM has allowed us to strengthen our position as the world leader in multi-product aircraft maintenance by combining the complementary features of the maintenance activities
of Air France (Air France Industries (AFI)), and those of the KLM Engineering & Maintenance division. In a market where outsourced maintenance has been growing for several years, the Group signed numerous aircraft maintenance contracts over
the financial year ended March 31, 2006 and maintains the fleets of more than 300 customers, including 150 airlines, representing over 800 aircraft.

We recorded third party revenues for maintenance activities of 896 million for the financial year ended March 31, 2006. This represented an
increase of 12.1% on a pro forma basis as compared to the financial year ended March 31, 2005. Operating income for maintenance activities more than doubled to 54 million for the financial year ended March 31, 2006 as compared to
25 million for the financial year ended March 31, 2005 on a pro forma basis.

All aircraft are subject to technical reviews and regular maintenance stipulated by manufacturers and the regulations in force in the country in which an aircraft is registered. MRO activities consist of regularly
scheduled MRO activities (preventive maintenance) and supplementary MRO activities (curative maintenance) performed on an as-needed basis. Regularly scheduled MRO activities includes line maintenance  whole aircraft inspections undertaken
after each flight, and on a daily and weekly basis; light maintenance  systematic, detailed inspections and functional tests undertaken at specified calendar and engine-hour intervals; and heavy maintenance  overhaul of airframe and
certain components performed at six to 10-year intervals, depending on the aircraft.

Our maintenance operating facilities are located at six main sites: four sites at Air France Industries and two sites belonging to KLM Engineering & Maintenance. Additionally, separate maintenance units are
located at 200 airports for Air France Industries and 50 airports for KLM.

Our specialization in the maintenance of new generation aircraft was confirmed in the financial year ended March 31, 2006 with the launch of servicing for the CFM56-7 (B737NG), CF6-80 E1 (A330) and GE90 (B777)
engines, in addition to the CFM56-3 (B737CG), CFM56-5 (A320, A340) and CF6-80C2 (B747, B767, MD11) support services.

Our engine servicing activities, mainly for the CF6, CFM56-7 and GE90, as well as equipment on the Boeing
B777 and B737NG and Airbus A320, A330 and A340 have grown through the development of integrated support service contracts. Support services for the A320, A330, A340, B767 and B747 are still in demand and remain our leading product.

The organization of our maintenance activity has been
streamlined by dividing technical support and product management between Air France Industries and KLM Engineering & Maintenance. Each aircraft type has been allocated its own unit for fundamental maintenance (Central Engineering
Agency) and product responsibility (Product Leadership Agency) for both engines and flight equipment. This new organization into CEA and PLA, established in 2005 on certain aircraft and engine types, has
allowed for a reduction in the use of outsourcers and for specialization in our investments. Its deployment will continue into the financial year ended March 31, 2007.

A joint purchasing policy based on a common strategy for products and suppliers was implemented in the financial year ended
March 31, 2006 and has accounts for more than half the 25 million of savings arising from the synergies between the two companies. Furthermore, the creation of a joint sales team resulted in 20 million of revenues from
cross-selling.

Partnership Policy

During the financial year ended March 31, 2006, we have signed different
contracts with Boeing for equipment on the B777 and the B737NG, with General Electric for the GE90 engines on B777, CFM56-7 and B737 NG aircraft and with Engine Alliance for the GP-7200 engines on the Airbus A380 aircraft.

In June 2005, Air France Industries has also created Spairliners, a joint
venture with Lufthansa Technik, for equipment support on the future A380. Repair capacity is split between the two shareholders and the stock of spare parts is shared between the two businesses.

We also have two joint ventures in the United States and China. Aero
Maintenance Group (AMG), in which Air France acquired a 40% stake in June 2005, based in Miami, Florida, is specialized in equipment support and provides us a presence in the American market. AMG provides a logistical platform and an equipment
repair unit, a key element for the B767 equipment support contract signed with LAN in 2005. Hangxin group, an equipment repair shop for new generation aircraft located in China, allows us to benefit from this growing market. Since we took control in
May 2002, Hangxin group has seen annual growth of 20%. In 2005, the business continued to develop the capacity of a new technical workshop in Shanghai within the framework of a 3.5 million investment program and the bringing in line of new
maintenance and avionics repair capacity.

Other Activities

Our other activities primarily include KLMs charter business through
its subsidiary transavia.com and our catering activity.

KLM
Charter Business

KLM operates a charter business through
its subsidiary transavia.com.

For the financial year ended
March 31, 2006, transavia.com operated a fleet of 27 Boeing 737-700s and -800s from Amsterdam Schiphol and Rotterdam airports to more than 70 European destinations. For the same period, revenues totaled 468 million, an increase of 14.4%
on a pro forma basis as compared to the financial year ended March 31, 2005 and generated operating income of 32 million.

While air transport remains its core business, transavia.com is positioning itself as an online travel
agent for both leisure and business travel. Since the beginning of 2006, its website has been offering holidays with flights operated by transavia.com and accommodation provided by Dutch tour operator partners.

Within its low-cost transport operations, transavia.com offers
more than 20 destinations in Europe. In 2005, 93% of direct bookings were made over the internet, making transavia.com one of the leaders in the Dutch online market. transavia.com has also developed, since the summer of 2005, the sale of travel
goods and taxi reservations on its website.

During the
financial year ended March 31, 2006, transavia.com increased its share of the business to business market and extended its e-services offering to tour operators, providing them with access, via a dedicated internet portal, to
reservation and capacity management services.

Catering

We provides catering services through Servair (a 97.6%
owned subsidiary of Air France) and KLM Catering Services Schiphol B.V. (a 100% owned subsidiary of KLM). Our catering revenues were 260 million for the financial year ended March 31, 2006 as compared with 304 million the previous
year on a pro forma basis. This decrease was due to the fact catering revenues for the financial year ended March 31, 2005 included on 15 months of Servair revenues. Each of Servair and KLM Catering Services Schiphol B.V. provides a wide range
of services tailored to the needs of Air France, KLM and other airlines: food preparation and catering, aircraft resupply, cabin cleaning and service, ramp and baggage services, and airport logistics.

With operations in 27 countries, Servair ranks number three in terms of
turnover in the global airline pursers industry and, in 2005, prepared 38 million meal trays. Servair has a 27% stake in Alpha Airport Limited and has built a network of partners which was strengthened in 2005 by the acquisition of Mauritanie
Catering.

To keep pace with the changes in the airline pursers
market, Servair launched in 2005 a company action plan called Winning through change, aimed at increasing flexibility, adapting cost structure and improving productivity in its business. The plan targets savings of 27 million over
three years. In the spring of 2006, Servair also opened a new handling base at Roissy-Charles de Gaulle airport to improve the quality of cabin cleaning while allowing a significant increase in productivity.

KLM Catering Services has one operation based at Schiphol airport, which
prepared more than 16.5 million meals in 2005.

To ensure
meal variety and differentiate the two companies from their competitors, Air France and KLM have chosen to work with well-known chefs in France and in Europe. For Espace Première, Air France benefits from the advice of Guy Martin, chef at the
Michelin-starred Le Grand Véfour in Paris. The wines served on board are selected by Olivier Poussier, winner of the best world sommelier award in 2000. For its World Business Class, KLM works with Cees Helder, whose Rotterdam
restaurant Parkheuvel, holds three Michelin stars.

We also
have implemented a rigorous quality control system, which is regularly audited by external organizations, ensuring compliance with standards across the production chain as well as at our suppliers. These efforts were recognized in 2005 by readers of
the German magazine Business Traveler who gave an award to Air France for its in-flight catering on flights to North and South America.

On June 1, 2005, we merged the Air France Fréquence Plus and the KLM Flying Dutchman programs into one frequent flyer
program called Flying Blue. See Key Events of Air France-KLM During the Financial Year Ended March 31, 2006.

SkyTeam Elite

SkyTeam Elite is a joint frequent flyer program developed by the SkyTeam alliances partners that offers advanced customer services to certain
categories of passengers on select routes of the SkyTeam network. For example, members of the SkyTeam Elite Frequent Flyer program may benefit from a priority reservation waitlist, priority check-in, extended lounge access, priority boarding,
preferred seating and priority airport standby. In addition, members of the SkyTeam Elite Plus Frequent Flyer program may benefit from guaranteed reservations on sold-out flights and priority baggage handling. Elite members accrue reward miles on
all SkyTeam flights and may redeem their miles for award tickets on any SkyTeam airline.

Airport Lounges

Customers of Air France and KLM have access to more than 390 airport lounges (including those of SkyTeam members) worldwide.

e-Services

The financial year ended March 31, 2006 experienced strong growth in the use of new technologies. We currently offer a range of e-service
applications responding to passenger needs in terms of greater control over the travel process, simplicity, transparency and clarity. New e-service applications include booking flights on dedicated internet sites, choosing seating on such sites,
printing boarding cards at home or from a self-service kiosk and electronic ticketing.

KLM was one of the pioneers in this area, enabling its customers in 2000 to check themselves in using one of the 20 first self-service kiosks located at Schiphol airport. In 2005, more than 58% of passengers traveling
with KLM from Schiphol used one of these kiosks to print their boarding cards. Today, more than 320 Air France or KLM self-service kiosks are in use in 50 European airports. We anticipate that this number will increase to 500 in close to 70 airports
during the financial year ended March 31, 2007, with added functionalities and a greater number of eligible customers. In the second half of 2006, Schiphol will open a departure hall dedicated to self-service check-in kiosks and baggage drop
off points.

Electronic ticketing, which has been gradually
introduced since 1998, is now used by nearly 70% of Air France passengers on the domestic network and by 77% of passengers traveling with KLM throughout the world. Electronic tickets are gradually replacing the paper version, which we anticipate to
phase out at the end of 2007.

To support the development of
e-services, the Air France and KLM websites have been completely redesigned. The two sites now provide faster, direct access to the e-services offered by the two airlines. As of April 2006, Air France and KLM customers have been able to use the
internet to check in for flights to nearly all the destinations offered by the two companies.

This rapid development of e-services is changing the way we conduct our business, whether in terms of sales or customer interface at airports. Reservations, ticket purchasing, check-in, Flying Blue frequent flyer
miles

management and direct marketing can all be done over the internet. The processing capacities offered by these technologies also translate into productivity
improvements as well as a reduction in our distribution costs.

Principal
Raw Materials Suppliers

The principal raw material we use
in our business is fuel. Air France obtains fuel from approximately 60 oil companies or retailers, with six large international oil companies providing approximately 75% of its supplies. KLM obtains fuel pursuant to various local fuel supply
contracts. The prices of fuel set forth in these contracts fluctuate with market indicators and are subject to periodic adjustment. Air France and KLM each pay for approximately 100% of their jet fuel in dollars.

Refueling contracts with oil companies are generally renegotiated annually
through standard tendering procedures. The Air Frances standard contract is for one year, except in certain isolated cases when Air France and KLM are also implementing joint fuel purchase programs in conjunction with SkyTeam alliance partners
in order to benefit from increased purchasing leverage.

The
price of jet fuel is historically volatile and is susceptible to geopolitical instability and has recently been at historically high levels. See Item 3: Key InformationRisk FactorsRisks Related to the BusinessAir France-KLM
may be adversely affected by high jet fuel prices. Air France and KLM employ a variety of risk management tools for oil and fuel purchasing, including swaps and options with or without premiums, and by purchasing jet fuel in various stages of
production and refinement in order to exploit price differentials between such stages. See Item 11: Quantitative and Qualitative Disclosure about Market RiskMarket Risk.

In response to the increase in the price of jet fuel, both Air France and KLM have introduced a series of fuel surcharges on
their passenger and cargo flights. See Item 5: Operating and Financial Review and ProspectsAirline Industry TrendsIncreased Fuel Prices.

Competition

Air France and KLM face competition on point-to-point traffic from different national carriers serving these destinations. In addition, for connecting
traffic, we compete with other major international airlines operating hub facilities.

In the European market, Air France and KLM also face competition from low-cost airlines, principally easyJet and Ryanair, as well as alternative means of transportation, in particular the TGV, the French high-speed
rail link and the Eurostar. Air France has code-sharing arrangements with the TGV network, offering rail/air transfers at the Roissy-CDG Terminal 2 and rail/air links from five regional cities to Roissy-CDG, thereby feeding hub traffic and allowing
TGV passengers to access Air Frances international network. Similarly, Air France has a code-sharing arrangement with Thalys International, a high-speed rail network with a Brussels-Paris link. Passengers may purchase combined train/air
tickets and travel on any one of five direct trips per day between Brussels-Midi station and Roissy-CDG.

Our competitors in cargo transport are principally Lufthansa, CARGOLUX, Singapore Airlines and Korean Air as well as freight integrators.

The Fleet

The Air France-KLM fleet

As of March 31, 2006, our fleet consisted of 575 aircraft, including 561 planes in operation. At the same date, we had firm orders for 48 planes and
options on 35 aircraft. 229 planes (40% of the fleet) were fully owned, while 151 aircraft (26% of the fleet) were under financial leases and 195 planes (34% of the fleet) were under operating leases. In addition to the main fleet, Air Ivoire
operates four aircraft.

Air France and KLM are accelerating the renewal of their fleets in response to the combined effects of
very high oil prices and a weak dollar. Air France decided to replace the B747-200 and -300 aircraft used in its Caribbean and Indian Ocean network with B777-300ER, which consume 26% less fuel, and the cargo B747-200 aircraft with B747-400ERF and
B777F. KLM decided to replace its B767-300ER with A330 and B777-200. It is currently contemplated that Air France will complete these replacements in the summer of 2010 and KLM in the summer of 2009.

The Air France Group Fleet

As at March 31, 2006, the Air France group fleet consisted of 397
planes, including 258 in the Air France fleet, 135 in the regional fleet plus Air Ivoires four planes. 45.6% of the Air France group fleet is owned, 16.9% is under financial leases, and 36.5% is operated under operating leases.

The Air France fleet

Air France operates a fleet of 258 aircraft, with 251 in operation, including
150 medium-haul, 96 long-haul and 12 cargo aircraft. The aircraft in the fleet have an average age of 9.2 years, with 7.4 for the long-haul fleet, 10 for the medium-haul fleet and 12.8 for the cargo fleet.

During the financial year ended March 31, 2006, 14 aircraft were added
to the fleet and 10 were withdrawn.

In the medium-haul fleet,
three Airbus A318s, two Airbus A319-ERs, which strengthened the Dedicate fleet, and two Airbus A320s were added. One Airbus A320 and four Boeing B737-500s were withdrawn. The rationalization process in the medium-haul fleet continued, focused on
models of the A320 family, ranging from 123 to 206 seats, allowing Air France to benefit from a reduction in operating and maintenance costs due to common technical specifications for flight decks, equipment and engines. It is currently contemplated
that the withdrawal of the last Boeing B737-500 will occur in the summer of 2007.

In the long-haul fleet, five planes were withdrawn (one B747-200, one B767-300 and two A340-300s) and six aircraft were added, including four Boeing B777-300ERs and two Airbus A330-200s. In the cargo fleet, one Boeing
B747-400 cargo plane was added and one B747-200 cargo plane was withdrawn.

Investments in flight equipment over the year amounted to 1.54 billion (including advances on orders and capital maintenance operations). At March 31, 2006, there were firm orders for 33 aircraft and
options on 17.

The following table sets forth the Air France fleet as at March 31, 2006 and 2005:

Type of Aircraft

Company owned

Financial leases

Operating leases

Total

In Operation

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

Long-haul fleet

B747-400

8

8

1

1

7

7

16

16

16

16

B747-200/300

6

7









6

7

4

5

B777-200/300

19

16

4

4

15

14

38

34

37

34

A340-300

10

8

3

6

7

8

20

22

20

22

A330-200

6

4

1

1

9

9

16

14

16

13

B767-300



1











1





Total Long-haul fleet

49

44

9

12

38

38

96

94

93

90

Cargo Fleet

B747-400 Cargo

2

1





3

3

5

4

5

4

B747-200 Cargo

5

5

1

1

1

2

7

8

7

8

Total cargo fleet

7

6

1

1

4

5

12

12

12

12

Medium-haul fleet

A321-100/200

11

11





2

2

13

13

13

13

A320-100/200

49

49

3

3

16

15

68

67

66

67

A319-100

20

18

4

4

21

21

45

43

44

43

A318-200

12

9









12

9

12

9

B737-300/500

3

4



3

9

9

12

16

11

15

Total Medium-haul fleet

95

91

7

10

48

47

150

148

146

147

Total Air France fleet

151

141

17

23

90

90

258

254

251

249

The Air France
regional fleet

The Air France regional division has a
fleet of 135 planes with 100 seats or fewer, with 128 aircraft in operation and 5 leased from third-party companies. This fleet is primarily organized around four aircraft: the Régional Embraer, the Brit Air Bombardier, the Régional
and BritAir Fokker (capacity of 79 and 100 seats), and the CityJet BAE.

During the financial year ended March 31, 2006, Brit Air added one CRJ700 and three Fokker 100s to its fleet. In addition, five BAE 146-200s were added to the CityJet fleet and two BAE 146-200s and one BAE146-300 were withdrawn.
Régional added two Fokker 100s and withdrew three Beech 1900s, two Embraer 120-ERs and one Saab 2000 from its fleet.

The average age of aircraft in the regional operating fleet is 8.6 years for Brit Air, 19.4 years for CityJet and 9.2 years for Régional.

Investments in flight equipment amounted to 68 million
for the year. There were firm orders for six aircraft at March 31, 2006. A grouped order has also been made for 13 second hand RJ 85s, operated to date by a subsidiary of Northwest Airlines and destined to replace CityJets ageing BAE 146
fleet.

The following table sets forth the Air France regional fleet as at March 31, 2006 and 2005:

Type of Aircraft

Company owned

Financial leases

Operating leases

Total

In Operation

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

Brit Air Fleet

Canadair Jet 700

2

2

10

9





12

11

12

11

Canadair Jet 100

2

2

11

11

6

6

19

19

19

19

F100-100

5

1





8

9

13

10

13

10

Total Brit Air fleet

9

5

21

20

14

15

44

40

44

40

Régional fleet

Embraer RJ 145

2

2

17

17

9

9

28

28

28

28

Embraer RJ 135

2

2

3

3

4

4

9

9

9

9

Embraer 120

8

7

1

3

2

3

11

13

9

10

Fokker 100

1

1

1

1

7

5

9

7

9

6

Fokker 70





5

5





5

5

5

5

Beach 1900

3

6

1

1

1

1

5

8





SAAB 2000









5

6

5

6

5

6

Total Régional fleet

16

18

28

30

28

28

72

76

65

64

CityJet fleet

BAE 146-200

5

5

1

1

13

11

19

17

19

17

Total CityJet fleet

5

5

1

1

13

11

19

17

19

17

Total regional fleet

30

28

50

51

55

54

135

133

128

121

Other fleets

Air Ivoire, a subsidiary of Air France, serves Africa
from Abidjan with three Fokker 28. During the financial year ended March 31, 2005, Air Ivoire added an Airbus A321 to its fleet to serve the Abidjan-Paris route. Following political developments in the Ivory Coast, however, this route was
suspended and the plane was subleased in March 2005.

The
KLM Group fleet

As at March 31, 2006, the KLM group
fleet consisted of 182 aircraft, 182 of which were operational. There were orders for 9 aircraft and options on 18. 26.4% of the planes are owned in full, 46.2% under financial leases, and 27.5% under operating leases. The average age of the
aircraft in the fleet is 8.9 years; with 9 years for the long-haul fleet, 9 years for the medium-haul fleet and 2.7 years for the cargo fleet.

The KLM fleet

The KLM fleet has 129 aircraft in operation, with 54 long-haul planes, 72 medium-haul planes and three cargo planes.

During the financial year ended March 31, 2006, five planes were added
to the fleet and four were withdrawn. In the medium-haul fleet, one Boeing B737-700 was added. In the long-haul fleet, one Boeing B777-200ER and three Airbus A330-200ER were added and four Boeing B767-300ER were withdrawn. Investments in flight
equipment over the year amounted to 442 million (including advances on orders and capital maintenance operations). At March 31, 2006, there were firm orders for nine aircraft and options on 18.

The following table sets forth the KLM fleet as at March 31, 2006 and 2005:

Type of Aircraft

Company-owned

Financial leases

Operating leases

Total

In operation

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

Long-haul fleet

B747-400

6

6

16

16





22

22

22

22

B777-200





5

4

6

6

11

10

11

10

A330-200





3







3



3



MD 11





8

8

2

2

10

10

10

10

B767-300









8

12

8

12

8

12

Total long-haul fleet

6

6

32

28

16

20

54

54

54

54

Cargo fleet

B747-400 Cargo





3

3





3

3

3

3

Total cargo fleet





3

3





3

3

3

3

Medium-haul fleet

B737-900





2

2

3

3

5

5

5

5

B737-800

3

6

23

20

4

4

30

30

30

30

B737-700





5

4

5

5

10

9

10

9

B737-400

6

6





7

7

13

13

13

13

B737-300

6

6

1

1

7

7

14

14

14

14

Total Medium-haul fleet

15

18

31

27

26

26

72

71

72

71

Total KLM fleet

21

24

66

58

42

46

129

128

129

128

The KLM regional
fleet

KLMs regional fleet consists of 53 Fokker
aircraft. The average age of aircraft in operation is 13.3 years.

During the financial year ended March 31, 2006, three Fokker 100 were added to the regional fleet and one Fokker 100 and two Fokker 50 were withdrawn from the regional fleet. No investments in aircraft equipment were made over the
period. At March 31, 2006, there were no options on aircraft. The following table sets forth the KLM regional fleet as at March 31, 2006 and 2005:

The following description sets forth our principal properties in addition to our fleet of aircraft.

Air France Properties

Principal Properties

Description

Nature of Title

ApproximateGross Size

(square meters)

CDG  Roissy Airport

Terminals 2A-F

passenger terminal

leased

56,072

Maintenance Areas

hangars, workshops

leased

723,375

Equipment Area

open storage area

leased

60,271

Equipment Area/Runway Buildings

protected storage area/offices, workshops

leased

63,952

45 rue de Paris

head offices

leased

65,020

parking garage

leased

86,000

Terminal 1

passenger terminal

leased

26,129

Orly Airport

Aérogare Orly

flight operations terminal

leased

77,418

Paray Vieille Poste

hangars, workshops, offices

leased

166,737

1 avenue du Maréchal Devaux

offices (central building)

owned

13,150

warehouses/restaurant

owned

20,447

owned

2,400

Le Bourget Airport

Maintenance Areas

hangars, offices, parking area, workshops

leased

97,395

Toulouse

Maintenance Areas

hangars

owned

80,090

offices

leased

4,692

Montreuil

2 Gaumont

offices

leased

29,031

Vilgénis

Domaine de Vilgénis

instruction center

owned

6,849

Air France also has
other freehold and leasehold interests in real estate in numerous countries throughout the world that collectively are less significant. See Notes 29 and 32 to our consolidated financial statements.

In April 2004, Air France opened its new industrial center in Blagnac,
Toulouse to replace the Montaudran plant. Total investment was approximately 40 million. This center is dedicated to major maintenance for small carriers.

The Roissy-CDG and Orly airports are operated by ADP, a majority state-owned entity which has a concession to operate and manage the airports in the
Paris area. Air France rents technical, administrative and commercial premises within the airport, parking strips for the aircraft and industrial premises and hangars for cargo and maintenance that are often located on the side areas of the runways.

In certain cases, Air France is the tenant of equipped
premises (commercial premises within the terminals) or empty premises that it equips (for example, lounges for passengers at Roissy-CDG). Regarding terminal 2F at Roissy-CDG, Air France is responsible for completely equipping, remodeling and
decorating the private areas in

the interior of the terminal. This was also true of terminal 2E which was closed following the collapse of part of the roof on May 23, 2004. Air
Frances expenses in connection with the work on terminal 2E were estimated to total 48 million, of which 40 million had already been spent prior to its closure. With respect to industrial premises and hangars, Air France is usually
the tenant of the land and the owner of the buildings that it has constructed. This is also the case for Air Frances corporate head offices, where Air France has a long-term construction lease of 70 years (from 1994) with the landowner, ADP.
On January 28, 2004, Air France entered into a 12-year sale and leaseback agreement with a syndicate of banks covering the building and Air Frances rights under the construction lease.

Air France also occupies premises and land in the airports outside the Paris
region, pursuant to the same temporary occupation regime. In foreign airports, Air France is subject, as are the other airline companies, to applicable local law. Air Frances largest leased area outside of France is at New Yorks John F.
Kennedy airport.

KLM Properties

Principal Properties

Description

Nature of Title

ApproximateGross Size

(square meters)

Amstelveen

Head office

owned

39,830

Parking space

owned

10,668

Schiphol Airport

Hangars

owned

226,448

Parking space

owned

27,569

Freight buildings

owned

99,523

Terminal buildings

leased

35,060

Crewcenter

leased

6,494

Engine shop

owned

80,043

Catering buildings

owned

58,764

Warehouses

owned

38,796

Offices

owned

129,115

Other

owned

41,953

KLM owns its head
office buildings in Amstelveen where its corporate management and various staff bureaus and divisions are located.

In addition, KLM maintains and operates facilities at Amsterdam Airport Schiphol for the servicing, overhauling and repair of aircraft, engines, parts and
accessories. These facilities include hangars, engine, communications and other workshops, engine test cells and warehousing facilities. KLM houses its operations, engineering and purchasing personnel at Schiphol airport. All of these engineering
and maintenance facilities are either leased or constructed on leased land. The land leases typically have a term varying from 25 to 75 years.

Schiphol airport is operated by a corporation owned jointly by the State of the Netherlands, the City of Amsterdam, the Province of Noord-Holland and the
City of Rotterdam.

Environmental Policy

Air France and KLM are each individually responsible for environmental
management of their operations. However, the Environmental departments of each company collaborate on a large number of issues with a view

to harmonizing policies where synergies are identified. We have already implemented a joint policy for air transport activity on climate change and
collaborate in the development of sustainable development reports and environmental reporting programs.

Air France has established an Environment and Sustainable Development Department which is responsible for the environmental policy of Air France. This
department is responsible for enforcing the environmental policy at the air operations level as well as overseeing the enforcement of the environmental policy for ground operations as carried-out by other departments. Both the Environment and
Sustainable Development Department and the departments responsible for ground operations are responsible for ensuring regulatory compliance and for limiting the environmental impact of operations.

KLMs environmental policy is established at the board level and put
into practice through annual environmental programs. One member of the board of managing directors is designated as responsible for environmental issues. Each organizational unit within KLM has an environmental liaison officer responsible for
coordinating environmental issues and advising management. The Environmental Services Department assists the board of managing directors and the individual organizational units. It also monitors internal and external developments relating to the
environment.

KLMs management is responsible for ensuring
that sufficient information and training opportunities on environment issues are available. This is verified annually as part of KLMs ISO 14001 certification. Air France is currently undertaking steps to harmonize this local training
throughout the company.

Environmental evaluation or certification programs

Air France is committed to environmental management
following the ISO 14001 rules, applied consistently with its Quality-Safety-Environment (QSE) program.

The Orly (engineering and maintenance department) and Le Bourget sites of Air France Industry are already ISO 14001 certified. Air France Industries aims
to have 90% of its sites ISO 14001 certified by 2007.

In other
areas of the business such as Air France Cargo or Operations, the principles of the ISO 14001 standard will continue to be the benchmark guiding the deployment of the environmental program in accordance with the QSE program. A certification program
is currently being studied within these departments.

Air
France Industries CRMA subsidiary has been ISO 14001 certified since 1999. Servair (catering) has deployed a system of preliminary environmental diagnostics at its sites. Its ACNA cleaning subsidiary has also embarked on an ISO 14001
certification program.

KLM is ISO 14001 and EMAS certified.

Compliance with legal and regulatory requirements

As operators of passenger and cargo aircraft, Air France and KLM are subject
to a wide range of French, Dutch, E.U. and international regulations. See Regulation of Air France-KLMEnvironmental Protection and Anti-Noise Standards. At present, Air France and KLM each monitor regulatory developments with
respect to issues directly concerning them.

To ensure greater
consistency within Air France and to assist compliance with applicable regulations, Air France has set up a centralized monitoring tool, overseen by an environmental law specialist consultancy firm. On April 1, 2005, Air France Industries
established an automated reporting and management tool to facilitate the tracking of environmental performance. Air France Cargo ensures its regulatory compliance by undertaking environmental audits of its sites.

As part of its ISO 14001 system, KLM has extensive procedures, including internal and external audits, to
identify amendments to applicable environmental legislation or regulations. When KLM implements process changes, it notifies the competent authorities are notified to ensure the current environmental licenses do not need revision. To ensure
compliance with the legal and regulatory requirements relating to KLMs ground operations outside the Netherlands, KLM implements Good Environmental Practices at its outstations.

Environmental Risk Management

In January 2003, Air France established a Risk Management and Environmental Protection Unit within the QSE Department. This unit is responsible for
drafting three-year action plans to monitor maintenance activities that could have a significant environmental impact. These three-year actions plans are designed to stay abreast or ahead of regulatory developments. Risks are initially identified
through audits or inventory programs.

KLM has two systems
designed to manage environmental risk. First, ISO 14001 pro-actively identifies risks and required action through the execution of audits, management reviews and the regular update of all environmental registers. Additionally, KLM applies a
company-wide risk management system where, every quarter, risks are inventoried, the likelihood and impact assessed and the proposed action is discussed at board level.

Repairing environmental damage

We are liable for the noise tax at Amsterdams Schiphol airport and Frances ten main airports.

For 2005, Air France paid 9.9 million in noise tax for
its operations in mainland France. For the calendar year ended December 31, 2005, Air France will pay 375,800 in noise fines, most of which relate to delayed late flight departures, at CDG-Roissy.

Air France is a member of the CCE/CCAR (Environmental Advisory
Committee/Advisory Committee for Resident Assistance), responsible for ensuring that funds collected under the noise tax are put to the most effective use and that residents in designated noise areas are properly sound-proofed as rapidly as
possible. The Committee seeks to optimize protection around airport zones, while restricting the inflow of additional residents in zones where noise pollution from airports is deemed penalizing.

Air France continues the clean-up of the Air France Industry Montaudran site,
which has been vacated after more than five decades of maintenance activity. In conjunction with the Toulouse DRIRE (Regional Industry, Research and Environmental Agency), Air France carried out preliminary studies and is financing soil
rehabilitation work. During the financial year ended March 31, 2005, Air France carried out studies on pollution identified on the northern part of the maintenance site and the possible related risks. The overall clean-up program, describing
the technical solutions to deal with the problems identified, was presented to the DRIRE in April 2005. In parallel, the water table is being continually monitored in the southern area of the site. The measured content of the main pollutants is, to
date, below regulatory thresholds. The second phase in the rehabilitation and clean-up of the Montaudran industrial site is underway and is currently estimated to cost 2.5 million.

In addition, Air France has provisioned 0.7 million for the rehabilitation of the Orly industrial facilities.

KLM publishes annually on the internet
(www.klm.com/sustainability) an overview of its environmental costs. For the financial year ended March 31, 2006, KLM paid 22.4 million in noise taxes for sound proofing and compensation for loss of value in properties around Schiphol
airport. Dutch noise regulations result in altered landing and take-off procedures and in circumnavigation to avoid densely populated areas. KLM estimates that, during the financial year ended March 31, 2006, the cost of implementing these new
procedures amounted to 10 million. Expenditure to ensure environmental sound waste disposal, waste water treatment and cleaning

processes amounted to 3.4 million and approximately 4 million was spent on external environmental communication and initiatives to encourage
staff to use the public transport system.

As we believe we are
in compliance with all applicable environmental regulations, no provisions have been recorded in respect of such regulations.

Legal Proceedings

We and our subsidiaries are involved in various disputes, for which we have not necessarily been required to book provisions in our financial statements.

A class action has been filed against Air France, KLM and
several U.S. airlines, by five travel agencies based in the United States and their professional association (Association of Retail Travel Agents) for collusion. The damages claimed against the airlines represents a total of U.S.$17.5 billion, and
this amount may be tripled under U.S. antitrust legislation. An initial ruling was handed down on October 30, 2003 in favor of the airlines. In a ruling announced on December 9, 2004, the Court of Richmond (Virginia) confirmed the decision
taken on October 30, 2003. Subject to a possible appeal, the airlines, including Air France and KLM, have been definitively cleared in this case. No provisions had been booked in connection with this dispute.

A similar suit is currently being reviewed by the Federal Court of the
Northern District of Ohio. Approximately 50 travel agents, which were initially plaintiffs in the case mentioned above, but later withdrew, have filed a case on the same grounds (collusion) against Air France, KLM and other European and U.S.
airlines. The amount of damages alleged has not yet been determined. Neither Air France nor KLM have booked any provisions in connection with these proceedings.

In December 2004, IAP Intermodal filed charges against several airlines including Air France in the Federal Court of the Eastern District of Texas,
alleging that the flight-time scheduling software used by these airlines infringes on three patents held by IAP Intermodal. On the basis of legal advice given by a firm specializing in these matters in the United States, Air France believes that
these claims have no grounds, and does not plan on booking any provisions.

During the calendar years 2000 and early 2001, a number of Servair employees initiated a lawsuit before the French Labor Court seeking payment of back wages. The plaintiffs argued that time spent eating meals in the
company cafeteria constituted time during which the employee is under the control of the employer and should thus be compensated as normal working hours. Servair has taken the position that time spent eating meals is an interruption in working hours
that is not entitled to remuneration. In its definitive ruling dated November 8, 2001, the Court of Appeal of Paris sided with the position argued by Servair. Other suits representing a total of 471 individual claims initiated by Servair
employees over this same issue are still pending before the courts. In a ruling handed down on October 29, 2004, the court dismissed a case filed by approximately 30 employees. In a ruling handed down on June 7, 2005, the court dismissed
actions brought by 122 employees. Only one proceeding with 255 employees is still pending before the Labor Board. This action is considered to be without merit by Air France-KLM and no provisions have been recorded.

As of February 14, 2006, authorities from the E.U. Commission and the U.S.
Department of Justice presented themselves at the offices of Air France and KLM, as well as most airlines and world major cargo operators, formally requesting information about an alleged conspiracy to fix the price of air shipping services. SkyTeam
Cargo, a U.S. joint venture in which Air France is a participant, has also been requested to provide information as part of the investigation being conducted by the U.S. Department of Justice. Air France-KLM, as well as Air France and KLM, are
cooperating with these investigations, as well as a similar investigation being conducted by the Canadian Competition Bureau. Additionally, Air France-KLM has been informed by the Swiss authorities that they are also investigating alleged
anticompetitive activities in the air cargo industry, and may be asked to provide information to the Swiss authorities at some future date.

Following public announcement of the government investigations, numerous purported class action lawsuits
have been filed in various U.S. federal district courts against air cargo operators, including Air France-KLM, Air France, KLM and/or related entities. Plaintiffs generally allege that defendants engaged in a conspiracy to fix the price of air
shipping services since January 1, 2000 including various surcharges in air cargo services in violation of antitrust laws, although in one of the actions, the plaintiff also alleges that Air France-KLM, Air France, KLM and/or related entities,
together with other air carriers, conspired to fix the rates applicable to passenger fares. The actions consequently seek compensatory damages and treble monetary damages in unspecified amounts, costs and attorneys fees, as well as injunctive
relief. In June 2006, many of these cases were transferred to a single U.S. federal district court for coordinated pretrial proceedings, with the remaining cases to be transferred shortly as tag along actions. Air France, KLM and/or
related entities, along with numerous other air cargo operators, have also been named as defendants in two lawsuits brought in Canada which also allege participation in a conspiracy to fix prices in the air cargo industry. Air France-KLM, Air France
and KLM intend to defend these cases vigorously.

Regulation of Air
France-KLM

The International Regulatory Framework

International commercial air transport is regulated by
international conventions that each participating country undertakes to ratify and directly apply within its national airspace. Three principal conventions, together with subsequent modifications, establish the legal and regulatory framework
governing international commercial air transport: the Convention for the Unification of Certain Rules Relating to International Carriage by Air (1929) known as the Warsaw Convention, the Convention on international civil aviation
(1944) known as the Chicago Convention, and the Convention on damage caused by foreign aircraft to third parties on the surface (1952) known as the Rome Convention.

The Warsaw Convention, modified by the Montreal Convention

The Warsaw Convention (1929), later modified by the Hague Protocol (1955),
established the principle of limited liability of air transport companies based on a presumption of fault. Under the Warsaw Convention, the financial limits on liability could be extended only if the victim proved gross negligence on the part of the
air transport company or if certain conditions (principally related to ticketing) were not met.

On May 28, 1999, the Montreal Convention was adopted by more than 50 countries, and entered into force in the E.U. on June 28, 2004 after
ratification on April 29, 2004 by France and 12 other E.U. Member States. This treaty provides for increased protection for victims who have suffered loss, and combines the presumption of fault principle of the Warsaw convention with strict
liability for damages deriving from accidents, up to a specified threshold amount, which amount is to be reviewed periodically.

Following the entry into the force of the Montreal Convention, a new European Regulation, No. 889/2002, adopted on May 13, 2002 and amending
Regulation No. 2027/97 on air carrier liability in the event of accidents, now applies within the E.U. creating a uniform system of liability for international air transport.

The Chicago Convention

The Chicago Convention (1944) sets out the legal and technical principles governing international civil aviation. In
addition, the Chicago Convention subjects participant countries, which include substantially all the member countries of the United Nations, to a common legal framework governing international air transport that participant countries are required to
implement in their respective national air space and apply in their relations with one another. In summary, the Chicago Convention laid down the general principle that each signatory state should have sovereignty over its air space and should have
the right to control the operation of scheduled

international air services over or into its territory. As a result, international air transport is founded on a collection of transport rights which the
participant states apply to each other (often referred to as traffic rights) by entering into:



multilateral air transport agreements between states (such as the International Air Services Transit Agreement of 1944, which gives airlines based in the contracting states general
rights for their scheduled flights to over-fly the territories of other contracting states and to make non-traffic stops in such territories) and



bilateral treaties based more or less closely on the standard agreements set forth in the Chicago Convention and through which the states grant each other one or more of the
designated air freedoms.

The Chicago
Convention permits non-scheduled flights, both charter and cargo, to fly-over the territories of signatory states and gives rights for non-scheduled flights to make stops for non-traffic purposes in the territories of such states, subject to certain
restrictions which may be imposed by the individual states. Traffic rights for non-scheduled flights are generally unilaterally granted by each participant state in relation to its own air space directly to the airline carriers. The home states of
the relevant airline carriers are only involved in the event of disputes.

The system established by the Chicago Convention presumes a formal connection between airline companies and their aircraft on the one hand, and individual states on the other. Consequently, with many exceptions, each
aircraft is usually registered in the same state as the airline company that operates it.

France and the Netherlands are each a party to the Chicago Convention, the International Air Services Transit Agreement and the two protocols amending the Chicago Convention relating to airline industry regulations.

In addition, France and the Netherlands are each a party to a
number of bilateral treaties.

These bilateral treaties
generally contain provisions governing the designation of airline carriers for the operation of specified routes, and may contain rules regulating the capacity offered by such airline carriers and procedures for the agreement of tariffs. Many
bilateral treaties require the combined approvals of the aviation authorities of both states involved.

Under a number of bilateral treaties, Air Frances right to operate air travel services on non-E.U. routes depends on being majority or substantially
owned and effectively controlled by French or E.U. nationals. In many instances, KLMs rights similarly depend on being majority or substantially owned and effectively controlled by Dutch or E.U. nationals.

Accordingly Air Frances amended articles of association provide that
certain shareholders may be obligated to sell all or a part of their Air France shares if 45% or more of the share capital or voting rights of Air France are held, directly or indirectly, by non-French persons. See Item 10: Additional
InformationForm and Holding of SharesCompulsory Transfer of Shares. In addition, the State of the Netherlands has an option, which has been amended in connection with the combination, to acquire preference shares B of KLM if a
country imposes or will impose restrictions or conditions on KLM as a consequence of a substantial part of KLMs share capital not being demonstrably Dutch owned or KLM not being effectively controlled by Dutch nationals.

The rules governing the nationality of shareholders of E.U. airlines deriving
from the Chicago Convention and/or bilateral treaties are to be interpreted in light of the judgments of the European Court of Justice of November 5, 2002, and the mandates given in June 2003 to the European Commission to negotiate various
agreements on behalf of the E.U. Member States with certain non-E.U. countries, discussed further below.

The Chicago Convention also provides for aircraft noise control and engine emission control regulations,
set forth in Annex 16 thereof. As an operator of passenger and cargo aircraft, Air France and KLM are subject to compliance with these provisions.

Finally, the Chicago Convention established the International Civil Aviation Organization (ICAO) which in 1947 became the aviation division of the United
Nations. Within the framework of the ICAO, participant states establish the international technical regulations applicable to civil aviation.

The Rome Convention

In principle, the Rome Convention (1952) regulates damages caused by foreign aircraft to third parties on the surface. However, neither France nor
the Netherlands has ratified the Rome Convention. Regulation of third party damages is governed in the Netherlands by general negligence rules in accordance with Article 162 of Book 6 of the Dutch Civil Code. Regulation of third party damages is
governed in France in accordance with the principles of article L.141 of the French Civil Aviation Code (Code de laviation civile). Following the events of September 11, 2001, certain members of the ICAO advocated the amendment and
modernization of the Rome Convention. A Special Group on the Modernization of the Rome Convention of 1952 has been established and meets from time to time. As of the date of this annual report, no such amendment or modernization had been
implemented.

IATA

In addition to the inter-state regulatory framework, scheduled air transport
companies created IATA in 1945 in Havana, Cuba. This organization holds a mandate to establish resolutions for the air transport profession and to supply participant members with a forum for matters concerning regulation of its members on
international routes (on-board service, travel documentation safety, security, navigation and flight operations, the development of communication standards, and administrative procedures).

Open Sky Agreements with the United States

Air traffic with the United States has been liberalized by several countries,
including France, the Netherlands and a number of other E.U. Member States, by way of so-called open sky agreements. Discussions arose between the E.U. and its Member States on whether it was lawful for them to enter into these agreements. The
European Commission sued some Member States before the European Court of Justice (the ECJ) and the ECJ delivered a judgment on November 5, 2002, stating that Denmark, Sweden, Finland, Belgium, Luxembourg, Austria and Germany had infringed upon
the European Communitys powers with respect to the conclusion of certain international agreements that are binding upon the European Community. In addition, these Member States and the United Kingdom were also found to have violated the rules
on the right of establishment embodied in Article 43 of the Treaty of Rome by excluding, in their open sky agreements with the U.S., air carriers established in the other Member States but not majority-owned and effectively controlled by nationals
of such States from the benefit of national treatment in the host Member State.

In 1992, the United States and the State of the Netherlands had agreed to expand their bilateral Air Transport Agreement to create an open sky agreement. That agreement permitted KLM to obtain antitrust immunity in
the United States for joint action with Northwest Airlines. Following challenges raised by the European Commission, the ECJ ruled that certain provisions of similar open sky agreements between other E.U. Member States and the U.S. were in violation
of the Commissions exclusive external competence. As a result, on July 20, 2004, the Commission announced that it had decided to bring a case before the ECJ against the State of the Netherlands challenging the allegedly discriminatory
language in its open skies agreement with the U.S.

In 2001,
the United States and France entered into an open sky agreement, which liberalized air traffic with the U.S. and permitted Air France to obtain antitrust immunity in the United States for joint action with Delta Air Lines. On July 20, 2004, the
Commission announced that it had decided to initiate new proceedings against three

Member States, including the French State, for failure to fulfill their obligations under the Treaty through having bilateral agreements with the U.S., which
contain allegedly discriminatory language similar to that in agreements condemned by the ECJ in November 2002.

Following the November 5, 2002 judgments, in June 2003, the 15 E.U. Member States gave the European Commission a mandate to negotiate with the United
States the creation of an open aviation area providing freedom of access on both sides of the Atlantic. Representatives from the United States and Europe have thereafter conducted several rounds of negotiations. In June 2006, the European Council
reaffirmed its unanimous satisfaction with the draft E.U./U.S. air transport agreement resulting from the negotiations in November 2005. It noted however that the U.S. rulemaking process in relation to the control of U.S. carriers by foreign
nationals has yet to be completed and that an agreement is unlikely to be concluded until the second half of 2006.

Agreements with other States

In June 2003, the Member States also gave the European Commission a so-called horizontal mandate to negotiate a European nationality clause in bilateral
agreements and with third countries on behalf of the E.U. Member States. Talks have been conducted with several non-E.U. States, and in June 2006 the European commission reported that to date 62 non-E.U. countries have recognized the E.U. single
market in their air services agreements, allowing European air carriers to operate flights between any E.U. Member State and these countries. Negotiations with other non-E.U. Member States continue.

European Regulation

Liberalization

In 1987, the European Commission undertook to create common European air
transport regulations. These consist of three sets of measures known as the First, Second and Third Packages. The Third Package (1992) included measures aimed at putting an end to certain aspects of the monopolies of various national airline
companies. As a result, airlines licensed by any EEA Member State, including Air France and KLM, now have free access to all routes (subject to certain limited technical exceptions) within the EEA, and capacity restrictions on such routes are no
longer permissible. On April 1, 1997, a single European airspace was established within which any European airline may freely operate on any routes within the E.U. Member States. In particular, European airlines may freely practice cabotage
(i.e., transporting passengers or cargo from one city to another, either within a Member State or between Member States other than the airlines home country). In addition, any resident of an E.U. Member State may hold an interest in the share
capital of any E.U. registered airline company, provided such interest holder is not acting as a front for a beneficial owner who is not a citizen of an E.U. Member State.

This European regulatory framework does not prevent the E.U. Member States from participation in the ICAO, nor does it
conflict with the principles and regulations established under the Chicago Convention. Rather it aims at creating a homogeneous regulatory framework for all European air carriers within the international regulatory framework.

Competition

Relevant E.U. regulations have for several years established the uniform
application of the European competition rules (Articles 81 and 82 of the Treaty of Rome) for all airlines operating air transport services within the E.U. as well as the rules concerning the granting of State-aid (Articles 87 and 89 of the E.C.
Treaty). The European Commissions jurisdiction to apply Articles 81 and 82 to air transport services between Community airports and third countries was extended with effect May 1, 2004 and, using these new powers, the Commission is
currently reviewing the impact of the SkyTeam alliance on competition. On June 19, 2006, the

members of SkyTeam announced that they have received a statement of objections from the Commission, which they are expected to respond to in the fall of
2006.

Miscellaneous

European regulations address a variety of aviation-related issues other than
those concerning competition, including air traffic noise, denied boarding, take-off and landing slots and air carrier liability, as described in this annual report. See Other Regulatory and Legal Issues Relating to Air Frances
Operations.

Air Transport Regulation and Legislation

French Regulation

Air transport in France is governed by the French Civil Aviation Code
(Code de lAviation Civile) of 1948, as amended, which contains the legal and regulatory provisions applicable to aircraft, airports, regular air transport and flight personnel. In addition, set forth in the French Civil Aviation Code
are the provisions applicable to Air France and ADP as well as those governing aviation fees. The French Civil Aviation Code has been frequently revised to harmonize French law with international and European regulations. Therefore the applicable
regulatory regime in France is the result of (i) national law; (ii) the application of regulations promulgated by the European Council and the European Commission; (iii) European directives incorporated into French law; (iv) air
service agreements to which France is a party and (v) the international conventions to which France is a party.

In particular, with respect to third party liability, article L. 141 of the French Civil Aviation Code applies because France has not ratified the Rome
Convention. This article provides the following: (i) no special regime is established to determine the liability of a pilot, or of the person or entity operating an aircraft, for damage caused by an aircraft in flight to another aircraft also
in flight (therefore general French law applies to determine liability); and (ii) the person or entity operating an aircraft is strictly liable for damage caused by the aircrafts movements, or by any object originating from the aircraft,
to any person or goods on the ground. This liability can only be reduced or eliminated where there is proof that the victim was at fault.

Dutch Regulation

Air transport in the Netherlands is governed by two main legislative acts applicable to aviation, the Aviation Law (Wet Luchtvaart) and the Dutch
Aviation Act (Luchtvaartwet). The Ministry of Transport, Public Works and Water Management administers both of these pieces of legislation which define the nature and extent of the regulation of airports and of civil aircraft operating within
and/or registered in the Netherlands. These pieces of legislation additionally provide the framework for safety regulation, air traffic control rules, aircraft airworthiness, pilot competency certificates, airport and air navigation standards and
environmental protection measures.

Other Regulatory and Legal Issues

Cooperation Agreement with Alitalia

On July 27, 2001, Air France and the Italian air carrier Alitalia
entered into a number of cooperation agreements. The agreements pursue the double aim of integrating Alitalia into the world-wide SkyTeam alliance created by Air France, Aéromexico, Delta Air Lines and Korean Airlines in 2000 (and since
expanded to include Aeroflot, Continental, CSA Czech Airlines, KLM Royal Dutch and Northwest), and of building a far-reaching, long-term strategic bilateral alliance based on close cooperation between the parties principally on services between
France and Italy. The agreements also connect the two airlines respective hubs at Roissy-CDG, Rome Fiumicino and Milan Malpensa airports.

On April 7, 2004, the European Commission adopted a decision formally exempting the cooperation
agreements as notified from the Article 81(1) prohibition from November 12, 2001 to November 11, 2007, subject to compliance with certain commitments annexed to the Commissions decision. These commitments included, notably, a
commitment to release take-off and landing slots to competitors at certain airports in specified circumstances. In July 2004, easyJet Ltd announced that it had initiated proceedings before the European Court of First Instance against the European
Commission challenging its decision to exempt the Air France/Alitalia cooperation agreements. The proceedings are pending as of the date of this annual report.

Allocation of Slots and Boarding Gates

Access to the worlds main international airports is regulated by the allotment of time slots, or in some instances the allotment of boarding gates.
The allotment of slots determines the ability of a carrier to land at, or take-off from, an airport at a specified time and date, and access too many European and Asian airports is regulated through slots, including airports in London, Paris,
Frankfurt, Milan, Madrid, Amsterdam, Bangkok, Tokyo, Hong Kong and Singapore. In the United States, access to airports is controlled by regulations based on the allotment of boarding gates (e.g., Los Angeles, San Francisco) with the exception of New
Yorks John F. Kennedy airport and Chicagos OHare airport, to which access is regulated by slots.

Due to saturation at several major European airports (primarily at peak hours), all air carriers must obtain flight slots, which are allocated in
accordance with the terms and conditions defined in European Council Regulation No. 95/93 of January 18, 1993 most recently amended by Regulation No. 793/2004. Under Regulation No. 95/93, each Member State, in relation to all
airports for which it is responsible, is required to designate an individual or an entity responsible for coordinating the allocation of the slots and the monitoring of their use. Such individual or entity must have specialized knowledge in the area
of coordinating aircraft routes and of the operational environment of air transport companies, and is designated after consultation between the relevant Member State, the airline companies which use the airports in question, their representatives
and the airport authorities.

As a general rule, a slot that
has been operated by an air carrier entitles that air carrier to claim the same slot in the next equivalent scheduling period (grandfather rights). Slots are allotted twice a year, at the time airline flight schedules for the relevant IATA season
are prepared by the airport coordinator. New or unused slots are generally allocated on a 50-50% basis among historic airline operators and new entrants at that airport.

At the close of this preliminary allotment (pre-coordination) process, a conference with virtually all the airport
coordinators and airline companies is organized, in order to enable airline companies to:



coordinate the slots they are allotted in different airports, so that when a flight links two airports, the slots granted on each platform are compatible with one another, and



exchange slots among themselves in the event that those originally allotted by the coordinators are unsatisfactory.

Pursuant to Regulation No. 95/93, air carriers must continue to use
allocated slots at a minimum of 80% of their level of use during the period such slots were attributed. Slots not used at such levels are transferred to a pool where they become available to other carriers and are lost to the carrier to
whom they were initially assigned. Regulation No. 95/93 also provides that exceptional circumstances, namely unforeseeable and irresistible cases outside the air carriers control, may affect the use of slots.

Environmental Protection and Anti-Noise Standards

Under both French and Dutch law, an aircraft operator is subject to liability
for damages caused by noise emissions from its aircraft. In France, an independent administrative body, the French Airport Noise Control Authority (Autorité de Contrôle des nuisances aéroportuaires), may recommend
restrictions on the operation of

certain aircraft and impose administrative fines (of up to 12,196) on aircraft operators or owners for non-compliance with anti-noise rules at take-off
or landing to or from French airports. In compliance with E.U. directive no. 2002/30 of March 26, 2002, restrictions on the operation of the so-called Chapter 3 noisiest aircraft (as defined by French regulations) were decided at Roissy-CDG. At
March 31, 2006, seven of Air Frances aircraft were potentially affected by these restrictions, and they are scheduled to be gradually withdrawn from the fleet by 2008.

Aircraft engine emissions, including emission of greenhouse gases, are also regulated by national and international rules.
Aircraft engines are required to meet the engine certification standards of Annex 16 of the Chicago Convention. The Kyoto protocol, which has not yet entered into force, requires industrialized countries that are listed in Annex I to the Chicago
Convention to reduce their national emissions of six greenhouse gases, the most relevant to aviation being carbon dioxide (CO2). In anticipation of the possible application of the Kyoto protocol to international aviation through an international or European regulation, Air France and KLM have implemented a fuel conservation plan, which, together with fleet
renewal, is intended to reduce jet fuel consumption throughout flight, and to contribute to reducing gaseous emissions. The action plan also provides for instructions concerning taxiing on arrival, and limiting the use of auxiliary power units.

Air France and KLMs operations on industrial and
maintenance sites, including the handling, storage, and disposal of raw materials and wastes, are subject to comprehensive laws and regulations relating to the generation, storage, handling, and transportation of hazardous materials, air emissions
and waste-water discharges, and hazardous substance pollution clean-up and remediation. Air France and KLM are also subject to regulations regarding the control and removal of asbestos-containing material, and the indemnification of potential
exposure of employees to asbestos.

Air Frances
industrial operations in France, and in particular its maintenance activities, are subject to French laws and regulations applicable to classified industrial sites (installations classées), which require users of such classified
industrial sites to notify authorities or obtain authorization prior to beginning operations. Among other obligations, the operator of a classified industrial site remains liable for any remediation of the site. Air France Industries has moved to a
new hanger in Toulouse Blagnac and will no longer operate the Montaudran site, which will be completely cleaned before it is turned over. Air France has undertaken renovation work at its Toulouse Montaudran and Vilgénis sites to remove old
pollution detected in these locations.

Insurance and Air
Carrier liability

In the aftermath of the
September 11, 2001 terrorist attacks in the United States, governmental insurance schemes in many Member States took on insurance cover which was lost when insurance companies cancelled their policies based on war risk clauses.

In order to restore confidence both in the aviation and in the insurance
sectors, the European Commission adopted Regulation No. 785/2004 (establishing minimum insurance requirements) applicable to all air carriers flying within, into, out of or over the European Union. This Regulation came into force on
April 30, 2005.

Air Transport Taxes

Airlines are subject to a certain number of air transport taxes which are
divided into air navigation taxes and airport taxes. Air navigation taxes include routing taxes (for over-flights) and terminal taxes (for air navigation within a 20 kilometer radius of a departure or destination airport). Airport taxes include
aircraft taxes (in particular landing fees) and passenger taxes. During the financial year ended March 31, 2006, we paid a total of 1.6 billion in landing fees and en route charges.

Legal and Regulatory Matters in Connection with the Exchange Offer

Air France and KLM made certain commitments (the Undertakings) to
the European Commission to secure its approval of the combination. On February 11, 2004, the European Commission adopted a formal

decision declaring the combination compatible with the common market subject to full compliance with the Undertakings. In May 2004, easyJet announced that it
had initiated proceedings before the European Court of First Instance against the European Commission approving the combination. Those proceedings are pending as of the date of this annual report. On July 4, 2006, the European Court of First
Instance dismissed easyJets appeal.

Definitions and Industry Terms

ADP

Aéroports de Paris.

AEA

Association of European Airlines.

Available seat kilometers (ASKs)

the total number of seats available for the transportation of passengers multiplied by the number of kilometers those seats are flown.

Available ton kilometers (ATKs)

the number of tons of capacity available for cargo multiplied by the kilometers flown.

Cargo

freight and mail.

Cargo load factor

revenue ton-kilometers for cargo expressed as a percentage of available cargo ton-kilometers.

DGAC

Direction Générale de lAviation Civile, the French civil aviation authority.

Domestic flights

short- and medium-haul flights between destinations within France.

EEA

European Economic Area, which includes the 25 E.U. member states plus Norway, Iceland and Liechtenstein.

Freedoms

the right of an airline, obtained through a bilateral treaty, to operate in the airspace and on the territory of a country other than its home country. The eight freedoms can be summarized as
follows:

(1) Departure from home country, right to fly over airspace of foreign country;

(2) Departure from home country, right to make a stopover in foreign country for technical reasons, without passenger embarkation or disembarkation (right of transit);

(3) Departure from home country, right of disembarkation for passengers from the home country;

(4) Departure from foreign country, right of embarkation for passengers traveling to the home country;

(5) Departure from home country, right of embarkation and disembarkation of passengers in two successive foreign countries;

(6) Departure from home country, right of embarkation for passengers traveling to the home country, then on to a third country;

(7) Departure from foreign country, right of embarkation for passengers traveling to a third country, without a stopover in the home country; and

(8) Departure from home country, right of embarkation of passengers from foreign country traveling to another destination in the same foreign country (cabotage).

IATA

International Air Transport Association. Its membership includes schedule and non-scheduled airlines.

Long-haul flights

intercontinental flights between destinations in Europe, North, Central and South America, the Far East and Australia and the Middle East and Sub-Saharan Africa.

Medium-haul flights

flights between destinations in Europe and North Africa.

Load factors

revenue ton-kilometers expressed as a percentage of available ton-kilometers.

Passenger load factor

revenue passenger-kilometers expressed as a percentage of available seat-kilometers.

Revenue passenger-kilometer (RPK)

one fare paying passenger transported one kilometer; revenue passenger-kilometers are computed by multiplying the number of revenue passengers by the kilometers they are
flown.

Revenue ton-kilometer (RTK)

one ton of paid cargo traffic transported one kilometer; revenue ton-kilometers are computed by multiplying metric ton of revenue traffic (passenger, foreign and mail) by the kilometers this
traffic is flown.

Slot

authorization given by an airport operator to take off or land at a particular airport during a specified time period.

Summer season

as defined by IATA: typically runs from the last Saturday in March to the last Saturday in October.

The following discussion should be read in conjunction with our consolidated financial statements as of and for the financial years ended March 31, 2006 and 2005, together with the notes thereto included
elsewhere in this annual report. The consolidated financial statements are presented in euro and have been prepared in accordance with IFRS as adopted by the E.U.

Basis of Presentation

We adopted IFRS as adopted by the E.U. as our primary accounting principles from April 1, 2005, and our first consolidated annual financial
statements under IFRS as adopted by the E.U. are those for the year ended March 31, 2006. They include comparative information for the year ended March 31, 2005 using IFRS as adopted by the E.U. as used as of and for the year ended
March 31, 2006.

As permitted by SEC release
No. 33-8567First-time application of International Financial Reporting Standardsissued by the U.S. Securities Exchange Commission (the SEC), we are filing for our first year of reporting under IFRS in this annual report
on Form 20-F for the financial year ended March 31, 2006 two years rather than three years of statements of income, changes in shareholders equity and cash flows prepared in accordance with IRFS, with appropriate related disclosure
required by this SEC release concerning exceptions to IFRS and reconciliation to previous generally accepted accounting principles applied by us.

International Financial Reporting Standards differ in certain significant respects from accounting principles generally accepted in the United States.
Note 41 to our consolidated annual financial statements describes the principal differences between IFRS and U.S. GAAP as they relate to us, and reconciles net income and shareholders equity to U.S. GAAP as of and for the financial years ended
March 31, 2006 and 2005.

Air France successfully
completed its exchange offer for all the outstanding common shares of KLM on May 3, 2004 and Air France-KLM was created in September 2004. As of the date of this annual report, we hold 97.5% of the economic rights and 49% of the share
capital and voting rights in respect of KLMs common shares. Air France-KLMs consolidated financial statements for the financial year ended March 31, 2006 include the results of operations of KLM for all of the financial year and are
not directly comparable to the consolidated financial statements of Air France as of and for the financial year ended March 31, 2005, which include the results of operations of KLM for 11 months.

Accordingly, in order to provide for a more meaningful comparison of our
consolidated financial statements, we have prepared unaudited consolidated pro forma financial information for the financial year ended March 31, 2005, which includes the results of our business combination with KLM and the exchange offer as if
they had taken place on April 1, 2004. We have published this pro-forma financial information as part of our consolidated financial statements as expressly permitted by our primary French regulator, the Autorité des marchés
financiers. The pro forma financial information is included in this annual report for illustrative purposes only and does not necessarily reflect the combined operating results or financial position that we could have recorded on such dates or
for such periods. The discussion of the results of operations contained in this Operating and Financial Review and Prospects includes a discussion of our published results for the financial year ended March 31, 2006 compared to our
pro forma results for the financial year ended March 31, 2005.

Overview

Air France-KLM is one of the largest
airline groups in the world, ranking first worldwide in terms of turnover as of December 31, 2004, according to IATA, and first among airlines in Europe in terms of traffic (revenue passenger- kilometers) for the financial year ended
March 31, 2006, according to the Association of European Airlines (AEA), with an overall market share of 27%.

The combination of Air France and KLM has also created a European and global leader in cargo activities.
We currently rank first in Europe (excluding integrators) in terms of scheduled freight tons carried as of March 31, 2006, according to the AEA. Air France and KLM are also active in the field of aircraft maintenance and are one of the
worlds leading suppliers of maintenance services.

Although Air France-KLM continued to operate in a difficult international environment during the financial year ended March 31, 2006, total operating revenues were 21,452 million, an increase of 10.2% on a pro forma basis from
the prior year. In addition to the consequences of the war in Iraq and the SARS epidemic commencing in 2003, the airline industry has been facing a sharp increase in fuel prices since the spring of 2004. While the recovery in airline traffic first
witnessed in the second half of 2003 has continued in 2004 and 2005, with growth of approximately 11% in 2004 and 7.5% in 2005, according to IATA, the air transport sector has had to face soaring fuel costs, which have generated industry-wide losses
of approximately $6 billion according to IATA. The air transport sector spent $92 billion on jet fuel in 2005, which had the effect of counterbalancing most cost-cutting efforts of individual airlines and the impact of a general economic recovery.
Including the losses for 2005 estimated by IATA, the total industry losses from 2001 to 2005 are expected to reach approximately $43.6 billion, which exceeds the total value created within the air transport sector from 1978 to 2000. These trends
have nevertheless affected Europe, Asia and the United States differently as explained below under Airline Industry TrendsGeographic Trends.

The various sources of our operating revenues are described below.

Air Transport

We generate operating revenues mainly from air transport operations, which consist of passenger and cargo operations.

Passenger

Passenger revenues consist of scheduled passenger and other passenger
revenues. Scheduled passenger operating revenues are derived from passengers transported on flights that have the Air France-KLM code, including flights that are operated by other airlines pursuant to code-sharing agreements. Other passenger
operating revenues are derived from commissions from SkyTeam alliance partnership arrangements, revenue from block-seat sales and information systems revenues.

Cargo

Cargo revenues are subdivided into freight transportation and other cargo revenues. Revenues from freight transportation consist of the transportation of
cargo on flights that have the Air France-KLM code, including flights that are operated by other airlines pursuant to code-sharing agreements. Other cargo revenues derive principally from sales of cargo capacity to third parties.

Maintenance

Maintenance revenues are generated principally by the Air France Industries
division and the KLM Engineering & Maintenance division which perform aircraft maintenance for the Air France-KLM groups two fleets and provide maintenance services to more than 300 third-party clients throughout the world.

Other

Other revenues principally consist of revenues from KLMs charter
business through its subsidiary transavia.com and from the catering activities of the Servair subsidiaries of Air France and KLM Catering.

Air France-KLM has defined five geographical regions into which passenger and cargo revenues are separately subdivided on
the basis of origin of sale and destination. These regions are Europe, North and South America, Asia, Africa and Middle East, and Caribbean and Indian Ocean.

Airline Industry Trends

Dynamic Passenger Business

The impact of the September 11, 2001 terrorist attacks, the war in Iraq and the outbreak of SARS had a significant negative impact on airline
passenger traffic in 2001, 2002 and 2003. Following a recovery in traffic first witnessed in the second half of 2003 and continuing through 2004, 2005 levels of passenger traffic have continued to follow this upward trend with sustained levels of
activity accompanied in general by a significant improvement in unit revenues. In December 2005, the International Air Transport Association (IATA) estimated that traffic grew by 5.9% in the first quarter of 2006 compared to the comparable period in
2005.

Increased Fuel Prices

Since spring 2004, the airline industry has faced sharp increases in fuel
prices which continue to impact profitability in the sector. According to IATA, fuel currently accounts for approximately 25% of the total costs for airlines. In response to the sharp rise in oil prices, both Air France and KLM have implemented
further fuel surcharges, amounting to, as at March 31, 2006, 16 on medium-haul flights and 48 on long-haul flights for Air France and 22 and 52, respectively for KLM. These surcharges, however, remain below the level of
surcharges applied by Air France-KLMs direct competitors.

Geographic Trends

Recent airline industry
trends in the three main geographic zones  Europe, the United States and Asia  have differed significantly. In the United States, most airlines have not been profitable since 2001 and the American air transport sector remains in
difficulty. Following the filing for Chapter 11 bankruptcy of United Airlines and US Airways (whose shareholders have since accepted a merger with America West) in 2003, Delta and Northwest have both filed for Chapter 11 bankruptcy in September
2005. Furthermore, faced with higher fuel prices, against which these airlines are unable to implement hedging policies due to their generally weak financial position, many U.S. carriers have continued to seek assistance from the U.S. federal
government. IATA forecasts that American airline companies will record losses of approximately $8 billion in 2005.

Asian airlines have generally grown strongly. According to IATA, Asian airlines are expected to achieve approximately $1 billion of profits in 2005.

IATA expects European airlines to break even at the end of
2005. The business of European airlines has generally been strong since the beginning of 2005, with a 6.2% increase in traffic and a 4.3% increase in capacity, resulting in an increase in load factor of 1.4 points to 76.0% during the first nine
months of 2005. 320 million passengers, representing an increase of 3.8% over 2004, traveled to and from the 49 countries included within Europe as defined by the Association of European Airlines (AEA). Europes leading airlines have been
able to implement hedging policies and impose fuel surcharges, while benefiting from the improvement in their load factors. These airlines have also been able to benefit from the increasing globalization of Europes economies, thereby becoming
less dependent on local economic growth.

Effect of the
Business Combination between Air France and KLM

Our
results for the financial year ended March 31, 2006 illustrate the success of the business combination of Air France and KLM, with merger synergies contributing strongly to our results. Our results also validate the implementation of our
profitable growth strategy.

Due to the success of the business combination between Air France and KLM, we regularly revise our
forecasts of revenue increasing synergies. For the financial year ended March 31, 2006, we achieved synergies from the combination amounting to 350 million, including 205 million from revenue synergies, and 145 million from
cost synergies. Since the business combination, total synergies realized in the passenger business have amounted to 246 million.

In addition, both Air France and KLM have continued to implement cost-savings measures. KLM achieved total cost savings of 650 million by the end of
the financial year ended March 31, 2006. At the end of the financial year ended March 31, 2005, KLM had generated 520 million in savings.

Air France is mid-way through its three year Compétitivité Major 2007 cost-savings program, aimed at improving unit costs by 6% by
March 2007. As at March 31, 2006, Air France achieved cost savings of 654 million. The main elements of the Major 07 Competitiveness plan include the transfer to a zero-commission system with travel agencies, the optimization of
procurement procedures and the improvement of process efficiency.

These measures have contributed to keeping unit costs low. As at March 31, 2006, unit costs per equivalent available seat kilometers (EASK) increased 2.2% while production measured in EASK increased 6.2%. These increases
were attributable in part to an unfavorable fuel price effect of 4.2% partially offset by a favorable currency effect of 0.7%.

Critical Accounting Policies

Our accounting policies are described in Note 3 to our consolidated financial statements. Critical accounting policies are those policies that reflect
significant estimates, judgments and uncertainties and potentially result in materially different results under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. We base our estimates and judgments on
historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about revenue, expenses and the carrying values of assets and liabilities that are
not readily apparent from other sources.

Published results may
differ from these estimates under different assumptions or conditions.

We use the following critical accounting policies in the preparation of our consolidated financial statements:

Revenue Recognition

We recognize revenue and any related commissions for both passenger and cargo operations when transportation is provided or, for passenger operations,
when a ticket expires unused. The amount of passenger ticket sales and commissions not yet recognized as revenue is reflected as deferred revenue on ticket sales in our consolidated balance sheet. We perform monthly evaluations of this
amount to assess the adequacy of the deferred revenue. Any adjustments, which can be significant, are included in results of operations for the periods in which the evaluations are completed.

For purposes of revenue recognition, unused tickets generally expire 18
months following the issuance date. As a result, we make estimates of tickets that will expire unused based on historical trends in order to estimate the amount of unused ticket revenue to be recognized at the time of sale. Changes to these
estimates could have a material effect on our financial results.

Frequent Flyer Accounting

We use a number of
estimates in accounting for the Flying Blue Program which resulted from the combination as of June 1, 2005 of the former Air France Fréquence Plus and the KLM Flying Dutchman frequent flyer programs. We believe these estimates are
consistent with industry practice.

We reduce revenue and record a liability for the estimated incremental cost of providing travel awards
based on a database of all program participants and consideration of each individuals outstanding awards balance. Not all program members redeem accumulated miles for flight awards under the plan, and some program members may never redeem
accumulated miles. Accordingly, we compute our program liability based on the analysis of previous experience under the program, anticipated behavior of customers, expectations of future awards to be issued, and analysis of current accumulated
mileage balances.

Due to the combination of Fréquence
Plus and KLM Flying Dutchman and the valuation of the new air miles redemption assumptions as of June 1, 2005, we have adjusted the estimate of the corresponding obligations of these programs. These changes in estimates had a positive
impact of 10 million after tax on earnings for the financial year ended March 31, 2005.

Determination of the liability for the costs of providing travel awards includes the consideration of the incremental costs of fuel, meals, passenger
insurance and ticketing. Costs such as aircraft maintenance, labor or overhead allocations are not considered incremental costs, and are not included in our estimates. As of March 31, 2006, the liability for outstanding but unissued awards was
116 million (118 million as of March 31, 2005).

A change to these costs estimates or assumptions regarding redemption of miles awards under the program could have a significant effect on our liability in the year of change as well as future years. Furthermore, a change to our policy
regarding the number of miles required for specific awards could have a significant impact on measurement of this liability.

We assess incremental cost estimates and award redemption assumptions on a periodic basis throughout the year. Any known or expected trends in individual
components are considered in developing estimates of the expected future incremental costs of awards to be issued under the program.

We also sell mileage credits in the Flying Blue program to participating partners, such as credit card companies and hotels. Income from the sale of
mileage is deferred and recognized as passenger revenue at the time when transportation is provided, based on estimates of the fair value of tickets to be redeemed. Proceeds from sales of mileage credits in excess of the incremental cost
of awards to be issued are recognized in income immediately.

Accounting for Pension Plans and Lump Sum Retirement Payments

We calculate our obligations in respect of pension plans and lump-sum retirement payments using the projected credit method, taking into consideration specific economic conditions prevailing in the various countries
concerned. These obligations are covered either by pension and/or plan assets.

Pension expense is recorded over the service lives of the employees participating in the plans. Pension expense is generally independent of any pension funding decisions made by us.

Our accounting for pension plans requires us to make a number of assumptions
that affect the consolidated financial statements. We believe the most critical are the assumed discount rate and the expected long-term rate of return on plan assets.

We determine our assumed discount rate on the measurement date for each plan. This rate is determined primarily by review of
the interest rates on high-quality long-term bonds in the appropriate jurisdictions (generally bonds rated AA or higher by a recognized rating agency). Nominal interest rates vary widely worldwide due to exchange rates and local inflation factors.
The weighted average assumed discount rate for Air France-KLMs worldwide defined benefit plans was 4.5% at March 31, 2006.

The fair value of Air France-KLM plan assets for total funded plans increased to 12,538 million as of March 31, 2006 from 10,782 million
on an actual basis at March 31, 2005. The expected long-term rate of

return on plan assets for Air France-KLMs funded defined benefit plans is based primarily on plan-specific investment studies performed by outside
consultants and consideration of recent and historical returns on the assets of each plan. For Euro-zone funded plans, lowering Air France-KLMs expected long-term rate of return (5.71% as of the March 31, 2006 measurement date) by 25
basis points would increase estimated pension expense for the financial year ended March 31, 2006 by approximately 29 million, including required amortization of actuarial losses.

Accounting for Major Maintenance Operations

IFRS Accounting Policy

Our accounting policy for major maintenance operations is described at Note
3.13 to the consolidated financial statements. The individual component approach requires us to make estimates with respect to the anticipated costs and timing of major airframe and engine operations, change to which could have a material effect on
our financial position and results of operations.

In addition,
our operating lease agreements typically require us either to return an airframe and engine in a certain condition, known as the contractual potential, or to pay or receive a fee based on the actual condition of the airframe and engine upon its
return. We record a provision or asset for restitution depending on our estimate of the difference between current airframe and engine condition and the contractual potential.

Change to our estimation of the future actual airframe and engine potential, restitution costs and the time at which such
costs would be incurred could have a material effect on our financial position and results of operations.

U.S. GAAP Accounting Policy

Under U.S. GAAP, all maintenance costs are expensed as incurred. Provision for restitution of aircraft under operating leases is recorded at the time
restitution costs are probable and can be reasonably estimated.

Impairment of Tangible Long Lived Assets

Under
IFRS and in accordance with IAS 36 Impairment of Assets, we review at each balance sheet date the carrying amount of tangible and intangible assets in order to asses whether there is any indication of impairment. If such an indication
exists, the recoverable value of the assets is estimated in order to determine the amount, if any, of the impairment. The recoverable value is the higher of the following values: the fair value reduced by selling costs and its value in use.

When it is not possible to estimate the recoverable value for
an individual asset, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs.

We determined that the smallest level at which assets could be tested were the CGUs corresponding to our operating segments. When the recoverable value of
a CGU is lower than its carrying value, an impairment is recognized. This impairment loss is allocated first to the carrying amount of the goodwill. The remainder is allocated to the other assets of the CGU pro rata on the basis of the carrying
amount of each asset in the unit. For the passenger segment, value in use is measured by discounting forecast operating cash flow to be generated by those assets, based on the models that the Group also use in making fleet scheduling decisions.
These models use passenger yield, fuel costs, labor costs, and other relevant factors for the markets where the specific aircraft will operate. Fair values of aircraft are estimated based on information available under the circumstances, including
published information from third party sources, current market conditions, or the value of similar assets.

Under U.S. GAAP, when impairment indicators are identified, we make judgments about the level of assets to be grouped for purposes of impairment according
to our segment level. We estimate future net cash flows

related to the asset group, and record impairment losses on long lived assets held and used when events and circumstances indicate that the undiscounted cash
flows estimated to be generated by those assets are less than the carrying amounts of those assets.

The impairment loss is measured by comparing the fair value of the asset to its carrying amount.

Deferred Tax Assets

Deferred tax assets relating to temporary differences and tax loss carry
forwards are recorded to the extent it is probable that the taxable entity will generate sufficient taxable income to absorb such temporary differences. We assess the likelihood based on our business plans and reasonable expectations of taxable
income and reversals of temporary differences for future years.

Under IFRS, the amount of tax losses for which no deferred tax asset is recognized in the balance sheet is 453 million as of March 31, 2006 and 463 million as of March 31, 2005.

Changes to our estimation and forecasts of future taxable income could result
in material changes to the amount of deferred tax assets recorded.

Scope of
Consolidation

Our consolidated income statement includes
the income statements of all companies acquired during the year from the date of acquisition. It also includes the income statements of any companies disposed of during the year up to the date of disposal. As of March 31, 2006, the Air
France-KLM group comprised 170 companies, of which 143 are fully consolidated and 27 recorded as equity affiliates. For a full list of companies within the scope of consolidation, see Note 40 to our consolidated financial statements for the
financial year ended March 31, 2006 included elsewhere in this annual report.

As the exchange offer for KLM common shares closed in May 2004, the Air France-KLM financial statements for the year ended March 31, 2005 include KLMs results over a period of 11 months (May 2004 to March
2005), whereas the Air France-KLM financial statements for the year ended March 31, 2006 include KLMs results over the entire year. As at March 31, 2006, Air France-KLM holds 97.5% of the common shares of KLM stock.

On December 30, 2004, Air France transferred its stake in Amadeus
France to Amadeus GTD. The net income of Amadeus France and its subsidiary Amadeus France Service had been consolidated within Air France-KLM until this transfer and classified as a discontinued activity.

Measures of Operating Performance

We use measures of operating performance in our business which are described
below. The operating performance data are unaudited and presented on a consolidated basis. Operating data for the financial year ended March 31, 2005 is, where indicated, presented on a pro forma basis to enable a better appreciation of the
operating performance data that might have been achieved if the closing date of the exchange offer had taken effect on April 1, 2004. This information is included solely for illustrative purposes and, accordingly, does not necessarily reflect
the combined operating data that we could have recorded on the dates or for the periods indicated.

Traffic (RPK and RTK)

Passenger traffic, or the number of fare-paying passengers transported, is measured in terms of revenue per passenger-kilometers (RPK), which correspond
to the total number of paying passengers multiplied by the total number of kilometers flown.

Cargo traffic, or the amount of freight transported, is measured in terms of revenue ton-kilometers
(RTK), which correspond to total metric tons of paid cargo carried multiplied by the total number of kilometers flown.

Capacity (ASK and ATK)

Passenger capacity, or the number of seats offered, is measured in terms of available seat-kilometers (ASK), which correspond to the total number of seats
available for paying passengers multiplied by the number of kilometers flown.

Cargo capacity is measured in terms of available ton-kilometers (ATK), which correspond to the total amount of tons of cargo that could be transported multiplied by the number of kilometers flown.

Load Factor

The ratio between revenue passenger kilometers and available seat-kilometers
is the passenger load factor. The ratio between revenue ton-kilometers and available ton-kilometers is the cargo load factor.

Unit Revenues

Unit revenue per available seat kilometer (ASK) corresponds to total revenues from scheduled passenger activity divided by the total number of ASK in a
given period.

Yield

Unit revenue per passenger-kilometer, or yield, corresponds to total revenues
from scheduled passengers divided by the total number of RPK in a given period.

Network Mix and Passenger Mix

Our unit revenue per ASK for our scheduled passenger operations varies mainly due to the global economy and competitive pressures affecting price, exchange rates, load factors and the mix of long-haul to medium-haul and short-haul flights,
or network mix. Unit revenues on long-haul flights are proportionately lower than those on medium-haul flights. Thus, in period-to-period comparisons, a change in the proportion of long-haul to medium-haul and domestic flights, or a
network mix effect, will tend to have a positive or negative effect on revenues depending on the increase or decrease of long-haul flights relative to medium-haul and domestic flights. Unit revenue per ASK is also affected by the ratio
of high contribution passengers to low contribution passengers, or passenger mix.

The following table sets forth operating revenues by type of activity for the financial years ended March 31, 2006 and
March 31, 2005 (on a pro forma and actual basis), and the percentage change between the 2006 revenues and the pro forma 2005 revenues:

Year ended March 31,

2006

2005Pro forma

Change

2005Actual

(in  millions, except percentages)

Scheduled passenger

15,902

14,425

10.2

%

14,099

Other passenger

1,040

954

9.0

%

934

Total passenger

16,942

15,379

10.2

%

15,033

Scheduled cargo

2,673

2,379

12.4

%

2,301

Other cargo

209

197

6.1

%

193

Total cargo

2,882

2,576

11.8

%

2,494

Maintenance

896

799

12.1

%

777

Other

728

713

2.1

%

674

Total Operating Revenues

21,448

19,467

10.2

%

18,978

Our total operating
revenues for the financial year ended March 31, 2006 increased 10.2% on a pro forma basis compared to the previous financial year, increasing to 21,448 million from 19,467 million for the financial year ended March 31, 2005 on
a pro forma basis. For the financial year ended March 31, 2006, revenues from passenger and cargo operations, which represented 92.4% of our consolidated revenues, increased by 10.4% on a pro forma basis compared to revenues from passenger and
cargo operations for the financial year ended March 31, 2005.

Revenues from passenger operations (79.0% of total operating revenues) increased 10.2% on a pro forma basis compared to such revenues for the prior period, with a 10.2% increase in scheduled passenger revenues and an increase of 9.0% in
other passenger revenues. The increases were principally due to the strong demand for passenger activity leading to an increase in load factor as well as the imposition of fuel surcharges described herein by both Air France and KLM to partially
offset the continued substantial increase in fuel prices.

Revenues from cargo operations (13.4% of total operating revenues) increased by 11.8% on a pro forma basis compared to such revenues for the financial year ended March 31, 2005 with a 12.4% increase in scheduled cargo revenues and a
6.1% increase in other cargo revenues. The increase in total cargo revenues resulted primarily from an improvement in traffic in the second half of the financial year, a robust unit revenue experienced over the entire financial year, the imposition
of fuel surcharges.

Maintenance revenues increased 12.1% on a
pro forma basis compared to such revenues for the financial year ended March 31, 2005 primarily as a result of the general recovery in the airline industry. Other revenues increased by 2.1% on a pro forma basis compared to such revenues for the
prior period due to increases in revenues from catering services and from the KLM charter subsidiary transavia.com. The 2.1% increase reflects 15 months of Servair revenues for the financial year ended March 31, 2005 compared to 12 months of
Servair revenues for the financial year ended March 31, 2006.

For the reasons discussed above under the heading Overview, operating revenues from passenger activity for
the financial year ended March 31, 2006 increased 10.2% on a pro forma basis compared to such revenues for the prior period, while scheduled passenger revenues increased 10.2% on a pro forma basis compared to such revenues for the prior period.

The following table shows passenger capacity, traffic and
load factor for the financial year ended March 31, 2006 and the change in these operating measures as compared to such operating measures for the previous financial year on a pro forma basis:

Capacity (ASK)

Traffic (RPK)

Load factor(RPK/ASK)

(in millions)

(change)

(in millions)

(change)

(in %)

(change)

Long-haul

180,733

7.4

%

151,427

9.3

%

83.8

%

1.4

pts

Medium-haul

53,936

2.5

%

37,825

6.2

%

70.1

%

2.4

pts

Total

234,669

6.2

%

189,252

8.6

%

80.6

%

1.8

pts

Capacity during the
financial year ended March 31, 2006 increased 6.2% on a pro forma basis over the prior period. Compared to the financial year ended March 31, 2005, growth in capacity over the long-haul network rose 7.4% on a pro forma basis, while
medium-haul capacity increased by 2.5% on a pro forma basis.

Passenger activity reported a steady increase over the financial year ended March 31, 2006 with traffic increasing 8.6% on a pro forma basis from the previous financial year ended March 31, 2005, while capacity increased 6.2% on a
pro forma basis, resulting in an increase in load factor of 1.8 points to 80.6%.

Traffic on the long-haul network reported an increase of 9.3% on a pro forma basis in passengers carried (21.1 million), as compared to the previous financial year ended March 31, 2005. With an increase of 7.4%
in capacity, traffic rose 9.3%, generating a 1.4 point gain in load factor to 83.8%. Long-haul revenue for the financial year ended March 31, 2006 totaled 9.4 billion, an increase of 13.5% on a pro forma basis over the financial year
ended March 31, 2005 despite strong negative currency effects.

Activity on the medium-haul network also improved for the financial year ended March 31, 2006 compared to the previous year. Traffic increased 6.2% on a pro forma basis from the previous financial year ended March 31, 2005, while
capacity increased 2.5% on a pro forma basis, generating a 2.4 point gain in load factor to 70.1%. The number of passengers carried increased 5.2% to 48.9 million, as compared to the previous financial year ended March 31, 2005 on a pro
forma basis.

The table below shows scheduled passenger
revenues by destination and by sales region for the year ended March 31, 2006, and the change in these revenues compared to the year ended March 31, 2005 on a pro forma basis:

Scheduled passenger revenues by destination and area of sale increased for each region. The weight of the
Caribbean and Indian Ocean network has fallen by approximately one percentage point, the health crisis present in the region having lead to a 2.8% reduction in capacity and a 1.5% decrease in traffic. A total of 3.1 million passengers used our
Caribbean and Indian Ocean network, a decrease of 1.5% on a pro forma basis.

Our networks in Africa and the Middle East are dedicated to industry travel to oil production and construction sites. The Africa-Middle East network posted increases in traffic of 9.4% on a pro forma basis and
capacity of 10.0%. The load factor remained broadly unchanged at 77.6%, a decrease of 0.4 points. Political tensions in a number of African countries during the financial year ended March 31, 2006 meant that traffic growth to Africa of 7.4% on
a pro forma basis did not keep pace with the growth of capacity of 9.5%. This lead to a decrease in load factor by 1.6 points to 78.3%. Activity in the Middle East, however, was particularly strong, with an increase in traffic of 14.9% on a pro
forma basis and capacity of 11.2%, leading to a 2.5 point increase in load factor to 75.8%.

Traffic in North and South America increased by 12% on a pro forma basis, representing strong activity in both North America and South America. As capacity rose 11%, the load factor increased 0.8 points to 86.3%. The
increase in revenues was notwithstanding a negative currency effect linked to the weak dollar.

Asian traffic increased substantially by 11.9% on a pro forma basis and capacity by 7.0%. The load factor increased 3.7 points to 85.2% due to the strong economic growth experienced in the area.

These increases, together with a substantial increase in revenues, reflect
the strong growth in the economy.

The following table shows a
breakdown of total passenger revenues, scheduled passenger revenues, passenger unit revenue per ASK, yield (passenger unit revenue per RPK) unit cost per ASK and operating income for the years ended March 31, 2006 and 2005 (on a pro forma and
actual basis), and the percentage change between these 2006 figures and pro forma 2005 figures:

Year ended March 31,

2006

2005Proforma

Change

2005Actual

Total passenger revenues (in  millions)

16,942

15,379

10.2

%

15,033

Scheduled passenger revenues (in  millions)

15,902

14,425

10.2

%

14,085

Unit revenue per ASK (in  cents)

6.78

6.53

3.7

%

6.56

Yield (unit revenue per RPK) (in  cents)

8.40

8.28

1.5

%

8.33

Unit cost per ASK (in  cents)

6.40

6.27

2.0

%

6.31

Operating income (in  millions)

686

384

78.6

%

382

Cargo Activity

Operating revenues from total cargo activity for the
financial year ended March 31, 2006 increased to 2.88 billion, an increase of 11.8% compared to the financial year ended March 31, 2005 on a pro forma basis. The increase in revenues from cargo activities resulted primarily from the
growth in the economy which enabled us to maintain a strong yield.

The following table shows cargo capacity, traffic and load factor for the financial year ended March 31, 2006 and the change in these operating measures as compared to the previous financial year on a pro forma basis.

During the financial year ended March 31, 2006, cargo activity recorded growth despite the high
increase in fuel prices (which were partially offset by fuel surcharges and our hedging policies). Cargo capacity increased 6.5% on a pro forma basis compared to the financial year ended March 31, 2005, while traffic increased 3.5% on a pro
forma basis. Cargo activity was affected by the weakness in European exports due to the strength of the euro, which resulted in a fall in the load factor of 1.9 points to 66.1%.

The following table shows the geographic mix of our scheduled cargo operating revenue for the financial year ended
March 31, 2006 and the percentage change in this mix from the previous financial year on a pro forma basis:

Scheduled cargo revenue

By destination

By sales region

(in  m)

(in % oftotal)

(change)

(in  m)

(in % oftotal)

(change)

Europe and North Africa

75

2.8

%

(2.6

)%

1,169

43.7

%

5.0

%

Caribbean and Indian Ocean

186

7.0

%



%

36

1.3

%

(12.2

)%

Africa-Middle East

320

12.0

%

4.6

%

170

6.4

%

4.9

%

North and Latin America

833

31.2

%

15.9

%

337

12.6

%

23.0

%

Asia

1,259

47.1

%

15.3

%

961

36.0

%

21.8

%

Total

2,673

100.0

%

12.4

%

2,673

100.0

%

12.4

%

The North and Latin
American network represented 34% of traffic and capacity for the financial year ended March 31, 2006. Traffic on this network increased 2.8% on a pro forma basis from the previous financial year ended March 31, 2005, while capacity
increased 8.8%, resulting in a decreased load factor of 3.9 points to 65.9%. The Asian network recorded a decline of 1.1 points in the load factor to 73.0% as an increase in traffic of 4.6% on a pro forma basis was less than the 6.2% increase in
capacity. The African and Middle East network, which represented approximately 10% of the cargo groups activity, saw an increase in traffic of 4.4% and an increase in capacity of 8.6%. The load factor decreased 2.4 points to 59.5%. The
Caribbean and Indian Ocean network remained stable, with a decrease of 0.3% in capacity and an increase of 0.7% in traffic compared to the financial year ended March 31, 2005 on a pro forma basis.

The following table sets forth total cargo revenue, revenue from scheduled
cargo, unit revenue per available ton-kilometer (ATK) of scheduled cargo, unit revenue per revenue ton-kilometer (RTK), unit cost per ATK and operating income of scheduled cargo for the financial year ended March 31, 2006 and the financial year
ended March 31, 2005 (on a pro forma and actual basis), as well as the percentage change between the 2006 figures and the pro forma 2005 figures:

Year ended March 31,

2006

2005Pro forma

Change

2005Actual

Total cargo revenue (in  millions)

2,882

2,576

11.9

%

2,494

Revenue from scheduled cargo (in  millions)

2,673

2,379

12.4

%

2,300

Unit revenue per ATK (in  cents)

16.30

15.45

5.5

%

15.58

Unit revenue per RTK (in  cents)

24.68

22.75

8.5

%

22.83

Unit cost per ATK (in  cents)

15.07

14.33

5.2

%

14.32

Operating income (in  millions)

166

140

18.6

%

138

Unit revenue per
available ton-kilometer increased by 5.5% on a pro forma basis, reflecting a favorable currency impact of 1.7%. Unit revenue per revenue ton-kilometer increased 8.5% on a pro forma basis.

Operating revenues of Air France-KLMs maintenance activity for the financial year ended March 31, 2006 increased
12.1% on a pro forma basis to 896 million. Operating income more than doubled, from 25 million for the financial year ended March 31, 2005 on a pro forma basis to 54 million for the financial year ended March 31, 2006.
The increase in revenues resulted primarily from the numerous new contracts entered into during the financial year, as well as the results of the reorganization of maintenance activities.

Other Activity

Operating revenues for Air France-KLMs other activities increased 2.1% for the year ended March 31, 2006 compared to the year ended
March 31, 2005 on a pro forma basis, to 728 million from 713 million. This increase was primarily due to the strong performance by Transavia.

External Expenses

External expenses for the financial year ended March 31, 2006 increased 10.8% on a pro forma basis over the previous year, increasing to 12.1
billion from 10.9 billion for the year ended March 31, 2005. The increase in external expenses resulted principally from the increase in fuel costs of 32%. Excluding increases due to fuel costs, the increase in external expenses was
limited to 3.8%. The following table shows a breakdown of our external expenses for the financial year ended March 31, 2006 and the financial year ended March 31, 2005 (on a pro forma and actual basis), as well as the percentage change
between the 2006 external expenses and the pro forma 2005 external expenses:

Year ended March 31,

2006

2005Pro forma

Change

2005Actual

(in  millions, except percentages)

Aircraft fuel

3,588

2,721

31.9

%

2,653

Chartering costs

605

565

7.1

%

558

Aircraft operating leases

637

611

4.3

%

595

Landing fees and en route charges

1,610

1,504

7.0

%

1,460

Catering

405

399

1.5

%

391

Handling charges

1,203

1,100

9.5

%

1,072

Aircraft maintenance costs

740

683

8.3

%

653

Commercial and distribution costs

1,232

1,435

(14.2

)%

1,404

Other external expenses

2,070

1,898

9.1

%

1,843

Total

12,090

10,916

10.8

%

10,629

Jet Fuel

Jet fuel expenses increased 31.9% on a pro forma basis for
the financial year ended March 31, 2006 as compared to the financial year ended March 31, 2005 to 3,588 million from 2,721 million due principally to the substantial increase in fuel prices. The application of our hedging
policies in respect of fuel costs resulted in a gain of 953 million, or 21% of the fuel bill before hedging. The increase in fuel costs was due to a 4% increase in volume of purchases and a 41% increase in prices, which were partially offset
by an unfavorable currency effect of 2% and the gain of 15% due to the application of our hedging policies.

Chartering Costs

Aircraft charter costs rose 7.1% on a pro forma basis to 605 million for the financial year ended March 31, 2006, from 565 million for
the previous year, due to the code-sharing agreement entered into with Air Europa and Portugalia.

For the year ended March 31, 2006, aircraft operating lease costs increased by 4.3% on a pro forma basis compared to
the previous period, increasing to 637 million from 611 million.

Landing Fees and en Route Charges

Landing fees and en route charges increased 7.0% on a pro forma basis to 1,610 million for the financial year ended March 31, 2006 from 1,504 million during the previous financial year. This increase
principally reflects the payment of landing fees for connecting passengers.

Catering

For the
financial year ended March 31, 2006, catering expenses increased 1.5% on a pro forma basis to 405 million compared to 399 million for the year ended March 31, 2005. The increase was mainly due to the increase in the number of
passengers carried.

Handling Charges

Handling charges totaled 1,203 million for the financial year ended
March 31, 2006, increasing 9.5% from 1,100 million for the year ended March 31, 2005 on a pro forma basis.

Aircraft Maintenance Costs

Aircraft maintenance costs increased by 8.3% for the year ended March 31, 2006, to 740 million from 683 million for the prior year on a
pro forma basis.

Commercial and Distribution Costs

Commercial and distribution costs decreased by 14.2% for
the financial year ended March 31, 2006, decreasing to 1,232 million from 1,435 million for the prior year on a pro forma basis. The decrease in commercial and distribution expenses resulted primarily from the transition to zero
commission for travel agencies from January 2005 in the Netherlands and from April 2005 in France.

Other External Expenses

Other external expenses increased by 9.1% for the financial year ended March 31, 2006, rising to 2,070 million from 1,898 million for the
financial year ended March 31, 2005 on a pro forma basis. The increase in other external expenses resulted mainly from the transition to financial reporting under IFRS and the implementation of the disclosure committee.

Salaries and Related Costs

Salaries and related costs increased by 3.6% for the financial year ended
March 31, 2006, rising to 6.4 billion from 6.1 billion for the financial year ended March 31, 2005 on a pro forma basis. Payroll costs increased by 3.3% on a pro forma basis and social security contributions by 3.0% on a pro
forma basis. The average number of employees of the Air France-KLM group was broadly unchanged at 102,422 employees compared to the financial year ended March 31, 2005.

Taxes Other than Income Tax

Taxes and duties, other than income tax, consist principally of the French business tax (taxe professionnelle) and
taxes based on employee salaries. The taxe professionnelle is charged by local French authorities to

companies and takes into account the rental value of the companys premises and the value of its fixed assets. Taxes other than income tax remained
unchanged from the financial year ended March 31, 2005 at 228 million.

Depreciation and Amortization

Depreciation and amortization charges increased to 1.76 billion for the financial year ended March 31, 2006 from 1.6 billion for the financial year ended March 31, 2005 on a pro forma basis.

Charges to operating provisions amounted to 109 million
for the financial year ended March 31, 2006 compared to 32 million for the previous financial year on a pro forma basis. This increase is principally a result of the write-back of a provision during the financial year ended March 31,
2005.

Current Operating Income

Current operating income for the financial year ended March 31, 2006
increased 69.3% to 936 million from 553 million for the financial year ended March 31, 2005 on a pro forma basis. Current operating income represented 4.4% of Air France-KLMs total operating revenues.

Sales of Aircraft Equipment

Air France-KLM recorded a slight gain on aircraft disposals, net of 2
million for the year ended March 31, 2006 compared to a gain of 19 million during the financial year ended March 31, 2005 on a pro forma basis.

Negative Goodwill

Negative goodwill amounted to 5 million for the financial year ended March 31, 2006, compared to 1,354 million for the prior financial
year on a pro forma basis resulting from KLMs business combination.

Other Non-Current Income and Expenses

Other non-current expenses amounted to 512 million for the financial year ended March 31, 2006, compared to 5million for the prior financial year on a pro forma basis. Other non-current expenses for
the financial year ended March 31, 2006 corresponded mainly to the Amadeus transaction.

Income from Operating Activities

General

Income from
operating activities for the financial year ended March 31, 2006 amounted to 1.46 billion, including the capital gain of 504million relating to the public exchange offer for Amadeus shares made by WAM in July 2005. Income from
operating activities for the financial year ended March 31, 2005 was 1.9 billion on a pro forma basis, including, the reversal of 1.35 billion of negative goodwill resulting from the acquisition of KLM.

By Activity

For the financial year ended March 31, 2006, recurring operating income
from passenger activity increased 78.7% on a pro forma basis, rising to 686 million, compared to 384 million for the prior financial year.

Recurring operating income from cargo activities increased as well, rising to 166 million from 140 million for the financial year ended
March 31, 2005 on a pro forma basis. Income from current operations for maintenance increased for the financial year ended March 31, 2006, increasing to 54 million from 25 million for the prior period on a pro forma basis.

The following is a table showing a breakdown of operating
revenues, income from current operations and tangible fixed assets by activity for the years ended March 31, 2006 and 2005 (on a pro forma and actual basis):

Year ended March 31,

2006

2005 Pro forma

2005 Actual

Operatingrevenues

Incomefromcurrentoperations

Tangiblefixedassets

Operatingrevenues

Incomefromcurrentoperations

Tangiblefixedassets

Operatingrevenues

Incomefromcurrentoperations

Tangiblefixedassets

(in  millions)

Passenger

16,942

686

9,526

15,379

384

8,908

15,033

382

8,908

Cargo

2,882

166

1,135

2,576

140

1,023

2,494

138

1,023

Maintenance

896

54

1,376

799

25

1,331

777

26

1,331

Other

728

30

643

713

4

849

674

4

849

Total

21,448

936

12,680

19,467

553

12,111

18,978

550

12,111

Restructuring
Costs

Restructuring costs for the financial year ended
March 31, 2006 amounted to 1 million, compared to 21 million for the previous financial year on a pro forma basis.

During the financial year ended March 31, 2005, KLM decided to outsource to third parties part of its traffic registration, interline registration
and sales control activities, as well as its maintenance activities with respect to the KLM regional Fokker fleet. Additionally, KLM decided to choose the Schiphol hub as a base for their operations in Great Britain, requiring part of the operation
of KLMs subsidiary KLM Cityhopper to be relocated to the Netherlands. KLM accordingly accounted for a restructuring provision of 11 million. Restructuring charges for the financial year ended March 31, 2005 also included a
restructuring project to improve Servairs performance.

Gain on Amadeus GTD Transaction

During
the financial year ended March 31, 2005, Air France and the other air carrier shareholders of Amadeus GTD initiated discussions with private equity investment funds to launch, through a newly incorporated company, Wam Acquisition S.A., in which
they would be shareholders, a tender offer for Amadeus GTD at a price of 7.35 per share. This leveraged buy-out allowed Air France to realize its potential capital gain, while remaining an Amadeus GTD shareholder through Wam. The offer closed
early in July 2005 and the pre-tax gain on this transaction totaled 504 million.

Net Cost of Financial Debt

Net cost of financial debt amounted to 224 million for the financial year ended March 31, 2006, a decrease of 2.2% from the 229 recorded during the previous financial year on a pro forma basis, which
included a non-recurring financial gain of 38 million linked to the unwinding of two financing transactions. Net interest expense amounted to 392 million for the financial year ended March 31, 2006, an increase of 10.1% on a pro
forma basis from the 356 million recorded during the previous financial year due to the higher interest rates applicable over the period (4.29% for the year ended March 31, 2006 compared to 3.80% for the year ended March 31, 2005).
Foreign exchange losses for the financial year ended March 31, 2006 include an unrealized net

loss of 13 million, compared to a net loss of 4 million for the year ended March 31, 2005 on a pro forma basis. Additionally, for the
financial year ended March 31, 2006, we recognized a financial loss in other financial income of 31 million. Other financial income also included a provision for Alitalia shares.

Income Before Tax

Income before tax amounted to 1,200 million for the financial year
ended March 31, 2006, a decrease of 29.1% from 1,692 million for the financial year ended March 31, 2005 on a pro forma basis.

Income Tax

For the financial year ended March 31, 2006, we had a total tax charge of 256 million, compared to a tax charge of 133 million for the
previous period on a pro forma basis, of which 135 million related to tax paid on the Amadeus capital gain.

Share of Profit (Losses) of Associates

The share of profit (losses) of associates for the financial year ended March 31, 2006 represented a negative contribution of 23 million,
compared with a 73 million positive contribution for the financial year ended March 31, 2005 on a pro forma basis. This decrease was partly due to the asset impairment test of Martinair, 50% owned by the KLM group, which led to an asset
write-down of 59 million during the financial year ended March 31, 2006 and partly due to the sale of Amadeus in July 2005.

Net Income for the Period, Group Share

Net income for the financial year ended March 31, 2006 decreased 46.4%, to 913 million from 1,704 million for the financial year ended
March 31, 2005 on a pro forma basis.

Liquidity and Capital Resources

Liquidity

We believe that our liquidity position exceeds the minimum required to
sustain our business adequately and that our working capital is sufficient for our present requirements. We also believe that additional sources of liquidity are available to us if they are needed. Our liquidity position is strongly affected by
aircraft purchases, which under their terms may provide for payments to the aircraft manufacturer in advance of delivery and therefore before the aircraft can be used to generate revenue.

Our principal source of liquidity is operating cash flows, mainly from passengers, who pay for their tickets in advance of
receiving transport. Cash flows from operations increase in the summer season (between April and October), when there is greater passenger activity, and decline in the winter, when passenger activity decreases. Cash flows from operations are also
affected by the factors that increase or decrease passenger activity generally.

As of March 31, 2006, we held 2,946 million in cash and cash equivalents. In addition, Air Frances external sources of funding include a 1 billion syndicated credit facility established in
August 2001 and renewed and increased in April 2005 to 1.2 billion for a period of five years with an option to extend to seven years. This facility was extended to six years during the financial year ended March 31, 2006 and, as of the
date of this annual report is undrawn. Air France also has a medium-term credit line in the amount of 45 million, of which 33 million was drawn as at March 31, 2006, with maturity dates between April 2006 and October 2006. Air
France has additionally 4,866 million in capital leases, other bank loan facilities and bonds. On April 19, 2005, Air France completed an offering of 449,999,989.50 principal amount of 2.75% bonds due April 1, 2020 convertible
into and/or exchangeable for new and/or existing shares of Air France-KLM. Air France may have to

repay the bonds on April 1, 2012 or on April 1, 2016 if the bondholders exercise their put options. As of March 31, 2006, 125 million of
Air Frances debt was subject to financial covenants, which are limited to coverage of interest expense (adjusted with the operating leases rental expenses) and the ratio of unencumbered assets to unsecured debt. Air Frances 1.2
billion undrawn syndicated credit facility noted above also contains these financial covenants. Other than as described above, there are no unusual provisions, including, without limitation, those relating to changes in credit rating or ratings
outlook (or the inability to achieve changes), in any of our debt, lease or other arrangements that could trigger a requirement for an early payment, additional collateral support, changes in terms, acceleration of maturity or the creation of
additional financial obligations to any material extent.

KLMs external sources of liquidity consist of its five-year 540 million credit facility entered into in August 2005, mortgages secured by aircraft and non-fleet assets, and sale-and-lease back transactions of aircraft and
non-fleet assets. As of March 31, 2006, 500 million was outstanding under KLMs commercial paper program. Currently there are no unusual provisions in any of KLMs financial guarantees, debt or lease agreements or other
arrangements that could trigger a requirement for an early payment, additional collateral support, changes in terms, acceleration of maturity, or the creation of additional financial obligations to any material extent.

We believe that it would be possible to increase liquidity, if necessary, by
entering into additional sale and lease-back transactions with respect to unencumbered fully-owned aircraft and additional bank facilities.

Cash Flows

Net Cash Flows from Operating Activities

For the financial year ended March 31, 2006, net cash flows from operating activities were 2,656 million. For the financial year ended
March 31, 2005, net cash flows from operating activities were 2,054 million on a pro forma basis. The increase in cash flows from operating activities resulted from the strong level of activity within each of our business segments over
the financial year.

Net Cash Used in Investing
Activities

Net cash flows used in investing activities
for the financial year ended March 31, 2006 amounted to 1,807 million. For the financial year ended March 31, 2005, net cash flows used in investing activities were 1,222 million on a pro forma basis. This increase
was principally due to purchases of tangible and intangible fixed assets, mainly aircraft.

Net Cash Flows from Financing Activities

Net cash flows from financing activities amounted to 208 million for the financial year ended March 31, 2006. For the financial year ended March 31, 2005, net cash flows from financing activities
amounted to a net inflow of 53 million. This increase was principally as a result of an issuance of long-term debt of 552 million and an increase in repayments on financial debt of 434 million. Other repayment of debt amounted to
523 million for the financial year. New debt amounted to 1,410 million.

Capital Expenditure

Air
France-KLMs total capital expenditures on tangible and intangible fixed assets amounted to 2,544 million for the financial year ended March 31, 2006. For the financial year ended March 31, 2005, total capital expenditures
amounted to 2,131 million on a pro forma basis. Capital expenditures for the financial years ended March 31, 2006 and 2005 principally involved aircraft purchases.

Acquisitions of aircraft and flight equipment in the year ended March 31, 2006 included three Airbus
A318s, two Airbus A319-ERs, to the Air France medium haul fleet, four Boeing B777-300ERs and two Airbus A330-200s to the Air France long-haul fleet, one CRJ700 and three Fokker 100s for the Air France regional fleet, one Boeing B737-700 for the KLM
medium-haul fleet, one Boeing B777-200ER and three Airbus A330-200ERs for the KLM long-haul fleet and three Fokker 100s for the KLM regional fleet. See Item 4: Information on the CompanyBusiness of Air France-KLMThe Fleet.

Air France-KLM funds its capital expenditures through cash
flows from the operations, debt, capital leases, and proceeds from the sale of subsidiaries and from the sale of aircraft. Air France-KLMs commitments for capital expenditures are principally to purchase aircraft under aircraft acquisition
agreements. As of March 31, 2006, Air France-KLMs commitments relating to the purchase of aircraft (in terms of firm orders) were 3,488 million. As of March 31, 2005, Air Frances-KLM commitments relating to the
purchase of aircraft (in terms of firm orders) were 2,962 million on a pro forma basis. These commitments are denominated in dollars and are converted into euro at the close of each relevant financial year.

Capital Resources

The following table presents the amounts of short-term and long-term debt and capital lease obligations for Air France-KLM
at March 31, 2006 and at March 31, 2005 on a pro forma basis:

At March 31,

2006

2005

(in  millions)

Perpetual subordinated loan securities (TDI)

638

571

Bonds

382



Capital lease obligations

5,431

4,482

Other long-term loans

2,528

2,873

Accrued interest not yet due

107

79

Bond redemption premium





Long-term debt and capital leases(1)

9,086

8,005

Borrowings with short-term original maturities

Commercial paper





Short-term bank finance facilities and similar facilities

102

263

Short-term debt

102

263

Total short- and long-term debt and capital leases

9,188

8,268

Note:

(1)

Includes long-term debt maturing in less than one year (1,260 million at March 31, 2006 and 1,056 million at March 31, 2005).

Air France-KLM had commitments relating to
mortgaged or secured assets (which relate principally to aircraft mortgages) totaling 7,572 million as of March 31, 2006 and 7,593 million as of March 31, 2005.

Air France-KLMs long-term debt and capital lease obligations include obligations with fixed and variable exchange
rates. As of March 31, 2006, 35.3% of such obligations had variable rates after hedging, compared to 40.0% as of March 31, 2005.

In order to meet its financing needs, Air France and KLM incurred additional indebtedness of 1,410 million for the year ended March 31, 2006,
compared to 858 million for the prior period on a pro forma basis. During the financial year ended March 31, 2006, Air France-KLM reimbursed 1,103 million of indebtedness.

The following table shows a breakdown by currency of long-term debt and capital leases taking into
account the effects of derivative financial instruments for Air France-KLM at March 31, 2006 and at March 31, 2005:

At March 31,

2006

2005

(in  millions)

Euro (EUR)

7,938

7,629

U.S. dollar (USD)

792

890

Swiss franc (CHF)

274

281

Japanese yen (JPY)

22

29

Pound Sterling

59

100

Other currencies

1

4

Total

9,086

8,933

Net Debt

Pursuant to SEC rules, we have provided below a
reconciliation of net debt to short- and long-term debt and capital leases for the financial years ended March 31, 2006 and 2005. Net debt is a non-GAAP financial measure, and we believe that short- and long-term debt and capital leases is the
most directly comparable financial measure presented in accordance with generally accepted accounting principles. We define net debt as short- and long-term debt and capital leases less deposits on flight equipment under capital lease, cash and cash
equivalents and marketable securities with a maturity over three months. We have also provided below a ratio of net debt to stockholders equity and minority interests.

We believe that our net debt and ratio of net debt to stockholders equity and minority interests are useful to
investors as a measure of our liquidity and ability to serve and incur debt. However, net debt and such ratio should not be considered as measures of financial performance or leverage under IFRS or U.S. GAAP and thus should be evaluated together
with other financial ratios calculated in accordance with IFRS or U.S. GAAP and the various components of short- and long-term debt and capital leases. In addition, our definition of net debt may not be comparable to similarly titled financial
measures used by other companies. The following table shows a breakdown of net debt and stockholders equity and minority interests of Air France-KLM at March 31, 2006 and at March 31, 2005:

At March 31,

2006

2005

(in  millions)

Short- and long-term debt and capital leases

9,188

9,195

Deposits on flight equipment under capital leases

(943

)

(928

)

Cash and cash equivalents

(2,946

)

(2,047

)

Marketable securities with a maturity over three months

(865

)

(578

)

Net debt

4,434

5,642

Stockholders equity and minority interests

7,853

6,020

Net debt/stockholders equity and minority interests

0.56

0.94

Off-Balance Sheet Arrangements

During the financial year ended March 31, 2006, Air
France-KLMs warranties, sureties and guarantees corresponded primarily to the guarantee of a maximum of 21.5 million given by Air France-KLM to Amadeus GTD in connection with the sale of Amadeus France SNC. For further information on
this sale, see note 4.2 to our consolidated financial statements.

In addition, Air France-KLM has certain operating leases, primarily for aircraft, with total future lease payments of 3,983 million as of March 31, 2006. Entering into aircraft operating leases allows Air France-KLM to obtain aircraft
without immediate cash outflows for the purchase of aircraft.

The following table sets out Air France-KLMs contractual commitments and payments due by period at March 31,
2006:

Payment due by period

Contractual

Total

Less than1 year

1-2 years

2-3 years

3-4 years

4-5 years

5+ years

(in  millions)

Long-term debt obligations

9,086

1,260

1,081

883

749

763

4,350

Of which aircraft capital leases

5,072

733

760

443

527

530

2,079

Of which buildings capital leases

359

30

27

28

29

29

216

Operating leases

3,983

751

682

547

433

365

1,205

Other purchase commitments

187

187











Flight equipment orders

3,488

989

951

731

545

137

135

Estimated interest payments

2,021

377

325

281

245

211

582

Estimated receipts under interest rate swap agreements

(76

)

(14

)

(12

)

(11

)

(9

)

(8

)

(22

)

Planned funding of pension and other post-retirement benefit obligation

4,976

371

395

431

459

495

2,825

Total

23,665

3,921

3,422

2,862

2,422

1,963

9,075

In addition to through
our operating cash flows and cash balances as of March 31, 2006, we may finance our contractual commitments, including principally the purchases of flight equipment, through various methods, including entering into finance leases, issuing
equity-linked securities and entering into secured or unsecured bank facilities. We also may reduce our need for liquidity by decreasing our capital expenditure plan, as we did following the events of September 11, 2001, entering into sale and
lease back transactions and considering the disposing of non-strategic assets.

U.S. GAAP Reconciliation

We prepare our
consolidated financial statements in accordance with IFRS as adopted by the European Comission for use in the European Union, which differs in certain significant aspects from U.S. GAAP. The principal differences between IFRS and U.S. GAAP as they
relate to us are discussed in Note 41 to our consolidated financial statements. Note 41.1 to our consolidated financial statements contains a reconciliation of net income and stockholders equity under IFRS to net income and stockholders
equity under U.S. GAAP, as well as a summary of the adjustments to our income statements and stockholders equity that would have been required had we applied U.S. GAAP instead of IFRS. Differences in net income and stockholders equity
under IFRS and U.S. GAAP primarily result from the accounting of KLM negative goodwill, goodwill amortization, differences in the determination of the value of the fleet (as a result of the use of fair market value as deemed cost under IFRS),
stock-based compensation, accounting for leases (including sale-leaseback transactions), accounting for maintenance, restitution costs and derivative instruments and hedging activities. Further information on such differences and adjustments is set
forth in the notes to our consolidated financial statements mentioned above.

Net income under U.S. GAAP increased to 1,004 million for the financial year ended March 31, 2006 from 755 million for the previous period. This corresponds to a 33% increase in net income
under U.S. GAAP as

compared to a 46.6% decrease in net income under IFRS. This difference in trend is primarily related to the difference in accounting for negative goodwill
and to derivative instruments and hedging activities accounting, which differ under IFRS and U.S. GAAP.

Under IFRS, negative goodwill is directly recorded in the income statement as set forth in Note 4 to our consolidated financial statements. Under U.S.
GAAP, the acquiring enterprise must reduce proportionately the fair value of the acquired assets against the amount of negative goodwill. However, the purchase price allocated to certain assets such as prepaid pension assets and financial assets
(excluding investments in equity investees) are not reduced as they are viewed as having a more reliably determinable fair value.

The U.S. GAAP adjustment for derivative instruments and hedging activities resulted in a gain of 16 million for the financial year ended
March 31, 2006 as compared to a gain of 688 million for the previous period. The differences between IFRS and U.S. GAAP are described in Note 41.1 to our consolidated financial statements.

Exemptions from IFRS

Business combinations

We elected not to apply IFRS 3 (Business Combinations) retrospectively for all business combinations that occurred before the date of transition (April 1,
2004) which are primarily related to the acquisitions of UTA and Air Inter in 1990 and Regional Airlines, Britair and Cityjet in 2000.

If we had restated past business combinations to comply with IFRS 3, the Company would have not amortized the goodwill from the date of the business
combination. As a result, at the date of transition to IFRS, goodwill and stockholders equity would have been increased.

Employee benefits

We elected to recognize all cumulative actuarial gains and losses at the date of transition to IFRS (April 1, 2004) for all employee benefit plans, even
if we elected to use the corridor approach for actuarial gains and losses arising beginning April 1, 2004 in our IFRS consolidated financial statements. Under the corridor approach, actuarial gains and losses were
amortized over the average remaining working lives of employees participating in the plan when they exceeded the larger of the following two values: (i) 10% of the discounted value of the obligation of the benefits, (ii) 10% of the fair
value of any plan assets. Taking into account that in the long term actuarial gains and losses may offset one another, the applicable IAS standard permits an entity to leave some actuarial gains and losses within a range (or corridor)
around the best estimate of post-employment benefit obligations unrecognized.

The impact of this election on the stockholders equity at the date of transition to IFRS, as indicated in the Note Transition from French Accounting Standards to IFRS of our consolidated financial
statements, was negative in an amount of approximately 20 million.

Had we not used such exemption, the IFRS accounting treatment would have been comparable to that of French GAAP applied as of March 31, 2005.

Cumulative translation differences

We elected the exemption related to cumulative translation differences. As indicated in IFRS 1 paragraph 22, if a first-time
adopter uses this exemption, the cumulative translation differences for all foreign operations are

deemed to be zero at the date of transition to IFRS, and the gain or loss on a subsequent disposal of any foreign operations shall exclude translation
differences that arose before the date of transition to IFRS and shall include later translation differences.

This exemption had no impact on stockholders equity at the date of transition to IFRS and no material impact on net income for the fiscal year ended
March 31, 2006 as no material disposals of foreign operations were accounted for during the fiscal year ended March 31, 2006.

Property, plant and equipment fair value adjustment

We elected to fair value measure certain of our aircraft at the transition date to IFRS (April 1, 2004) and to use such fair value as the deemed cost of
the fleet. The impact of this election on the stockholders equity at the date of transition to IFRS, as indicated in the Note Transition from French Accounting Standards to IFRS of our consolidated financial statements, was
negative in an amount of approximately 740 million before tax.

We did not elect any other exemption from IFRS.

New Accounting
Pronouncements under U.S. GAAP

Accounting for Purchases
and Sales of Inventory with the Same Counterparty  EITF Issue N° 04-13

In September 2005, the EITF issued EITF Issue N° 04-13 Accounting for Purchases and Sales of Inventory with the Same Counterparty. EITF 04-13 provides guidance as to when purchases and sales of inventory
with the same counterparty should be accounted for as a single exchange transaction. EITF 04-13 also provides guidance as to when a non monetary exchange of inventory should be accounted for at fair value. EITF 04-13 will be applied to new
arrangements entered into, and modifications or renewals of existing arrangements occurring after April 1, 2006. The application of EITF 04-13 is not expected to have a significant impact on our financial position or results of operations under
U.S. GAAP.

Share-based paymentFASB Statement
No. 123 (Revised 2004)

SFAS 123(R) replaces FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires compensation expense, measured as the fair value at the grant date,
related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award.

In April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow companies to implement the standard at the
beginning of their next fiscal year, instead of the next reporting period beginning after June 15, 2005. SFAS No. 123 (R) is effective for us as of April 1, 2006 as we have not elected early adoption of the standard.

Upon adoption of SFAS 123(R), companies are allowed to select alternative
transition methods, each of which has different financial reporting implications. We have not chosen which transition method we will use yet.

We do not expect this standard will have a material impact on our financial position and results of operations.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107
(SAB 107) regarding the Staffs interpretation of SFAS 123(R). This interpretation expresses the views of the staff regarding the interaction between SFAS 123(R) and certain SEC rules and regulations and provides the Staffs
views regarding the

valuation of share-based payment arrangements for public companies. In particular, this SAB provides guidance related to share-based payment transactions
with non-employees, the transition from non-public to public entity status, valuation methods, the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense,
non-GAAP financial measures, first-time adoption of SFAS 123(R) in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon
adoption of SFAS 123(R), the modification of employee share options prior to adoption of Statement 123(R) and disclosures in Managements Discussion and Analysis subsequent to adoption of SFAS 123(R).

We do not expect this pronouncement will have a material impact on our
consolidated financial statements as reconciled to U.S. GAAP.

In December 2004, the FASB issued SFAS No. 153, which exempts from fair value measurement the exchanges of non-monetary assets that do not have
commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

This statement shall be applied for non monetary asset exchanges occurring after April 1, 2006. We do not expect that
the adoption of this statement will have a material impact on our financial position or results of operations.

In May 2005, the FASB published SFAS No. 154, which replaces APB
Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and applies to all voluntary changes in accounting principle and also to changes required by an
accounting pronouncement only when it does not include specific transition provisions.

Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting
principle. SFAS No. 154 requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of
the change. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS No. 154 requires that the new accounting principle be applied as if it were adopted prospectively
from the earliest date practicable.

SFAS No. 154 carries
forward without change the guidance contained in Opinion 20: (i) for reporting the correction of an error in previously issued financial statements, (ii) for a change in accounting estimate, and (iii) requiring justification of a
change in accounting principle on the basis of preferability.

We believe that the initial application of the provisions of SFAS. No. 154 will not have a material impact on our financial position, cash flows or results of operations.

FSP No. APB 18-1Accounting by an Investor for its Proportionate Share of Accumulated Other Comprehensive Income of
an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon a Loss of Significant Influence

In July 2005, the Financial Accounting Standards Board issued this FASB Staff Position (FSP) to provide guidance on how an investor should account for its
proportionate share of an investees equity adjustments for

other comprehensive income (OCI) upon a loss of significant influence. The FSP states that an investors proportionate share of an investees
equity adjustments for OCI should be offset against the carrying value of the investment at the time significant influence is lost. To the extent that the offset results in a carrying value of the investment that is less than zero, an investor
should (a) reduce the carrying value of the investment to zero and (b) record the remaining balance in income. The guidance in this FSP is effective for the Company as of the period beginning April 1, 2006. Upon adoption of this FSP,
any amount of an investees equity adjustments for OCI recorded in the shareholders equity of the investor, relating to an investment for which the reporting entity no longer has an ability to exercise significant influence, should be
offset against the carrying value of the investment. The amount that is offset should not include any items of accumulated OCI, relating to unrealized gains and losses recorded in accordance with Statement 115, that are recorded by an investor for
an investment that is accounted for as an available-for-sale security in accordance with Statement 115 upon adoption of this FSP. If comparative financial statements are provided for earlier periods, those financial statements shall be
retrospectively adjusted to reflect application of the provisions of this FSP.

We are currently reviewing this issue to measure the potential impact on the consolidated results of operations, financial position and cash flows.

EITF 05-5Accounting for Early Retirement or Post-Employment Programs with Specific Features (such as Terms
Specified in Altersteilzeit Early Retirement Arrangements)

In June 2005, the Emerging Issues Task Force reached a final consensus on issue No. 05-5, Accounting for Early Retirement or Post-Employment Programs with Specific Features (such as Terms Specified in Altersteilzeit Early Retirement
Arrangements). Altersteilzeit (ATZ) in Germany is an early retirement program designed to create an incentive for employees, within a certain age group, to leave their employers before the legal retirement age. Although established by law, the
actual arrangement between employers and employees is negotiated. Although this Issue addresses specific features in ATZ arrangements, the consensus reached in the Issue may apply to other types of arrangements with the same or similar terms.

EITF 05-5 is effective for us for the period beginning
April 1, 2006. We are currently reviewing this issue to measure the potential impact on the consolidated results of operations, financial position and cash flows.

In November 2005, the Financial Accounting
Standards Board issued this FASB Staff Position (FSP) which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also
includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this
FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The
Equity Method of Accounting for Investments in Common Stock.

FSP SFAS 115-1 is effective for us for the period beginning April 1, 2006. We are currently reviewing this issue to measure the potential impact on the consolidated results of operations, financial position and cash flows.

derivative that otherwise would require split treatment. Additionally it establishes a requirement to evaluate interests in securitized financial investments
to identify free-standing derivatives or those containing embedded derivatives. It also allows special-purpose entities to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 intends that similar financial assets are accounted for similarly regardless of the form of the instrument.

SFAS 155 is effective for accounting years beginning after September 15, 2006.

Pursuant to French law, each Air
France-KLM director, excluding the directors appointed to represent the French State, is required to hold at least one Air France-KLM share. Pursuant to our articles of association, each director, excluding the directors appointed to represent the
French State, is required to hold at least 10 Air France-KLM shares (in registered form only) for the duration of its term.

Board of Directors

As at March 31, 2006, our board of Directors consisted of 16 members:



11 directors appointed by the general shareholders meeting;



two representatives of the employee shareholders appointed by the general shareholders meeting; and



three representatives of the French State appointed by ministerial order.

During the financial year ended March 31, 2006, the board of directors appointed two new directors, Frits Bolkestein and Didier Le Chaton.
Mr. Bolkestein was recommended by the Dutch government, in line with the agreements of October 2003 in connection with the business combination of Air France and KLM, to succeed Mr. Duisenberg, who died in July 2005. Mr. Le Chaton
replaced Mr. Paris, who resigned as a director representing flight deck crew employees on July 12, 2005. To avoid leaving the flight deck employees un-represented until the next general shareholders meeting of July 12, 2006, our
board of directors appointed Mr. Le Chaton who received the majority vote in the written consultation pursuant to article 17 of our bylaws and the provisions of French law of April 9, 2003 with regard to the designation of directors
representing employee shareholders. Pursuant to such legal and statutory provisions, the general shareholders meeting of July 12, 2006 must elect the board representative for flight deck crew employees from those candidates having
obtained more than 5% of votes cast during the written consultation.

The secretary of Air France-KLM is Jean-Marc Bardy, general counsel of Air France.

During the financial year ended March 31, 2006, the Air France-KLM board
of directors held seven meetings with an average attendance rate of 74.2% (80.7% during the financial year ended March 31, 2005). Matters dealt with at the meetings included the review and approval of the interim and final corporate and
consolidated financial statements and presentation of the financial statements under IFRS and US GAAP, budget forecasts, development of the long-haul and cargo fleets, remuneration of corporate officers, group policy on information systems,
relations with Aéroports de Paris and regulated agreements and subdelegation given to the chairman and chief executive officer for the issuance of Air France-KLM shares arising from the conversion of bonds (issued by Air France) and the
option to convert and/or exchange into new or existing Air France-KLM new shares.

The following is a brief biography of each of the members of our board of directors:

Members Appointed by the General Shareholders Meeting

Jean-Cyril Spinetta was named chairman of the board of directors and chief executive officer on
October 22, 1997. Prior to joining Air France, Mr. Spinetta was with the French Ministry of Education, charged with evaluating employment opportunities in the French educational system. In 1996, Mr. Spinetta was a member of the
cabinet of the European Commissioner for Science, Research and Education, and later that year he joined the Inspectors Office in the French Ministry of Education. In 1994 and 1995, Mr. Spinetta held various positions in the French
government, including chargé de mission to the President of the French Republic. From 1990 to 1994, Mr. Spinetta was chairman and chief executive officer of Air France Europe, then known as Air Inter. In addition to his position
as chairman of the board and chief executive officer of Air France-KLM, Mr. Spinetta is also chairman and chief executive officer of Air France, a member of the board of directors of Alitalia, Saint-Gobain and Unilever, and the permanent
representative of Air France on the board of directors of Le Monde Entreprises. Mr. Spinetta is a graduate of the Institut des Sciences Politiques de Paris and the Ecole Nationale dAdministration.

Leo van Wijk was elected to the Air France-KLM board of directors in
2004. In addition to being vice chairman of the Air France-KLM board of directors, Mr. van Wijk is chairman of the management board of KLM. He is also a member of the board of directors of Northwest Airlines, a member of the advisory board of
ABN AMRO Holding and a member of the supervisory boards of Martinair, Aegon N.V., Randstad Holding N.V. and Kennemer Gasthuis. He holds a masters degree in economics.

Patricia Barbizet was elected to the Air France board of directors in 2003. In addition to being a member of the Air
France-KLM board of directors, Ms. Barbizet has been chief executive officer and a member of the board of directors of Artemis SA since 1992, as well as chief executive officer of Financière Pinault since 2000. She is also a member of
the board of directors of Christies International, FNAC, Bouygues, TF1 and vice chairman of the board of directors of Pinault-Printemps-Redoute. She is a graduate of the Ecole Supérieure de Commerce de Paris.

Frits Bolkestein was elected to the Air France-KLM board of directors
in 2005. In addition to being a member of the Air France-KLM board of directors, Mr. Bolkestein is a member of the supervisory board of Nederlandsche Bank. Mr. Bolkestein was also a member of the European Parliament from 1999 to 2004.

Giancarlo Cimoli was elected to the Air France board of
directors in 2004. In addition to being a member of the Air France-KLM board of directors, Mr. Cimoli is chairman and deputy director of Alitalia and a director of Enia S.p.A. and EnerTAD S.p.A. He is a graduate of the Polytechnic Institute of
Milan.

Jean-François Dehecq was elected to the
Air France board of directors in 1995. In addition to being a member of the Air France-KLM board of directors, Mr. Dehecq is chairman and chief executive officer of

Sanofi-Aventis. He is also chairman and director of Sanofi-Synthelabo, Daiichi Pharmaceuticals Co. and a director of Société Financière
des Laboratoires de Cosmétologie Yves Rocher. He is a graduate of the Ecole Nationale des Arts et Métiers.

Jean-Marc Espalioux was elected to the Air France board of directors in 2001. In addition to being a member of the Air France-KLM board of
directors, Mr. Espalioux is Director of Veolia Environment and a non-voting director on the supervisory board of the Caisse Nationale des Caisses dEpargne. He is a graduate of the Institut des Sciences Politiques de Paris and the
Ecole Nationale dAdministration.

Pierre-Henri
Gourgeon was named chief operating officer of Air France on April 2, 1998, deputy chief executive officer of Air France-KLM on May 17, 2004 and deputy chief executive officer of Air France on September 15, 2004. Mr. Gourgeon
had been executive vice presidentdevelopment and international affairs for Air France since December 1997. From March 1996 to November 1997, he served as chairman and chief executive officer of Amadeus France/Estérel, and he has been on
the board of Amadeus Global Travel Distribution since 1996. From 1993 to 1996, he served as chairman and chief executive officer of Servair and a number of its subsidiaries. From 1990 to 1993, Mr. Gourgeon was director general of the French
Civil Aviation Authority. Prior to that time, he held various positions in the French government and French State-owned enterprises. Mr. Gourgeon is a graduate of the Ecole Polytechnique and the Ecole Nationale Supérieure de
lAéronautique and holds a masters degree in science from the California Institute of Technology. In addition, Mr. Gourgeon is a member of the board of directors of Stéria, as well as the Air France-KLM
representative on the board of directors of Air France.

Cornelius J.A. van Lede was elected to the Air France board of directors in 2004. In addition to being a member of the Air France-KLM board of directors, Mr. van Lede is the chairman of the board of directors of INSEAD, as well
as chairman of the supervisory board of Heineken, a member of the supervisory board of Akzo Nobel, Philips Electronics and Air Liquide, and a director of Reed Elsevier and Sara Lee Corp. Mr. van Lede was the former chairman of the board of Akzo
Nobel.

Floris Maljers was elected to the Air France
board of directors in 2004. In addition to being a member of the Air France-KLM board of directors, Mr. Maljers is chairman of the board of directors of the Rotterdam School of Management and of Roompot and Recreatie Group as well as a director
of Rand Europe. Mr. Maljers is also the retired chairman and CEO of Unilever.

Pierre Richard was elected to the Air France board of directors in 1997. In addition to being a member of the Air France-KLM board of directors, Mr. Richard has been chairman of Dexia since 1999. He is
also chairman of the supervisory board of Dexia Crédit Local, vice chairman of the board of directors of Dexia Banque Belgium and Dexia Banque Internationale Luxembourg and a member of the board of directors of Crédit du Nord, the
European Investment Bank, Le Monde and Generali France. He is also vice chairman of the French Association of Banks and a member of the executive committee of the French Banking Federation. He is a graduate of the Ecole Polytechnique.

Members Appointed by the General Shareholders Meeting
to Represent Employee Shareholders

Didier Le
Chaton, a representative of the flight deck crew employee shareholders of the company, was elected to the Air France-KLM board of directors in 2006. In addition to being a member of the Air France-KLM board of directors, Mr. Le Chaton is a
Boeing 747-400 captain. He is a graduate of the Ecole Nationale de lAviation Civile.

Christian Magne, a representative of the ground staff and cabin crew employee shareholders of the company, was elected to the Air France board of
directors in 2001. In addition to being a member of the Air France-KLM board of directors, Mr. Magne is a finance executive of Air France-KLM.

Pierre-Mathieu Duhamel was elected to the Air France board of
directors in 2003. In addition to being a member of the Air France-KLM board of directors, Mr. Duhamel is director of the budget in the French Ministry of Economy, Finance and Industry. He is also a member of the board of directors of France
Telecom, EDF and SNCF. He is a graduate of the Institut des Sciences Politiques de Paris and the Ecole Nationale dAdministration.

Jean-Louis Girodolle was elected to the Air France board of directors in 2004. In addition to being a member of the Air France-KLM board of
directors, Mr. Girodolle is a deputy director with the French Department of the Treasury. He is also a member of the board of directors of Renault, RATP, Autoroutes de France and Aéroports de Paris. He is a graduate of the
Institut des Sciences Politiques de Paris and the Ecole Nationale dAdministration.

Claude Gressier was elected to the Air France board of directors in 2004. In addition to being a member of the Air France-KLM board of directors,
Mr. Gressier is the president of the French Department of Economic Affairs and a member of the board of directors of Autoroutes de France. He is a graduate of the Institut des Sciences Politiques de Paris and the Ecole
Polytechnique and is qualified as a general public works engineer.

Air
France-KLM Board Committees

Audit committee

The audit committee is in charge of recommending our
statutory auditors for appointment and reviewing our consolidated financial statements, principal financial risks, results and scope of the internal audit, our audit program and the conclusions and the recommendations of the statutory auditors. The
audit committee also supervises the procedures designed to ensure compliance with relevant stock exchange regulations. The audit committee approves the amount of our statutory auditors fees and approves certain services provided by our
statutory auditors.

During the course of the financial year
ended March 31, 2006, the audit committee was increased from five to six members. The current members of our audit committee are Pierre Richard as its chairman, Jean-François Dehecq, Jean-Louis Girodolle, Floris Maljers, Christian Magne
and Didier Le Chaton. The meetings of the audit committee are also attended by the chief financial officer of Air France-KLM, the chief financial officer of KLM, the internal audit directors of each of Air France and KLM and the statutory auditors
of Air France-KLM. The statutory auditors attended all meetings of the audit committee held during the financial year ended March 31, 2006. At the request of the chairman of the audit committee, the statutory auditors were able to consult with
members of the committee without the presence of the Groups senior management.

The audit committee reviews our interim and annual consolidated financial statements before they are submitted to our board of directors, and reviews the following:



the scope of consolidation;



the relevance and permanence of the accounting methods used to prepare our financial statements;



the principal estimates made by management;



the comments and recommendations of our statutory auditors and, if applicable, any significant adjustments resulting from audits;



with our executive management, the principal financial risks and off-balance sheet commitments; and



the program and results of internal audits conducted by each of Air France and KLM.

During the financial year ended March 31, 2006, the audit committee met five times with an
attendance rate of 81.4% (81.7% during the financial year ended March 31, 2005). At these meetings, the audit committee reviewed the quarterly, half-year and annual financial statements prior to their presentation to the board of directors. It
conducted a detailed examination of the statutory auditors report on the half-year and annual financial statements.

A special meeting was held during the financial year ended March 31, 2006 dedicated to reviewing the conversion of the financial statements to IFRS
and the examination of the main entries impacted by the accounting differences resulting from their implementation. During the same meeting, the committee commented on the reconciliation the financial statements to U.S. GAAP.

During the financial year ended March 31, 2006, the committee focused on
the implementation of internal control procedures, aimed at ensuring that Air France-KLM has the necessary control procedures to reasonably ensure that it is able to collate, process and report the information required to comply with the
Sarbanes-Oxley Act and the French Financial Security Law.

Similar focus was placed on the implementation of the Air France-KLM internal audit procedures. In particular, the committee requested a presentation of the new organization of the Air France-KLM internal audit function, based on the
realization of joint audits. The committee reviewed the principles governing currency and fuel hedging, risk management procedures within KLM and the implementation of a whistle-blowing provision. The audit committee additionally reviewed the
internal audit conducted for the financial year ended March 31, 2006.

Strategy committee

The
strategy committee is in charge of reviewing the strategic decisions concerning our activities, changes in the structure of our fleet or subsidiaries, the purchase or sale of aircraft-related or other assets, and the air sub-contracting and alliance
policy.

The strategy committee is composed of seven board
members. The current members of our strategy committee are Jean-Cyril Spinetta as its chairman, Patricia